April Trading Report: Increased Interest in Bitcoin Ahead of Halving Event

Bitcoin has outperformed Gold and the US 10-year Treasury Note, positioning itself as the top-performing asset class of 2020 so far, according to the latest Monthly Trading Report from Binance Futures.

Quick Takes:

• Year-to-date, Bitcoin has outperformed Gold and the US 10-year Treasury Note, positioning itself as the top-performing asset class of 2020 so far.

• In April, Binance was the only exchange to report growth in derivatives volume, continuing its growth trend for the third consecutive month.

• Binance Futures saw a massive increase in open interest, soaring higher than the previous month and undoing all the lost positions shelved during the plummet in March.

• As central banks flood the financial system with trillions of dollars of stimulus, investors today have a strong reason to invest in alternative assets like Bitcoin.

In the past few weeks, the extensive coverage on Bitcoin’s halving has drawn more traders and investors into the market. The surge in interest from investors in the cryptocurrency has elevated its market value by over 150% since bottoming out at $3,782 on March 13. 

Bitcoin trading has been on a parabolic rise in the last 2 weeks, after breaking above the $7000-mark and eventually peaked at $10,000. The strong buying momentum displayed is reminiscent of similar price rallies seen ahead of the preceding two halvings.

The term "halving" refers to a process that reduces the reward per block mined by 50%. This process occurs every four years and it is designed to control the supply of Bitcoin. Following the upcoming halving, rewards issued will drop to 6.25 BTC from the current 12.5 BTC. 

The top-performing asset class of 2020 so far

Cryptocurrencies entered the year with strong upward momentum that was driven by two dominant narratives: macro uncertainties and Bitcoin halving. 

The price rally started in early January and eventually peaked more than 6 weeks later. After recording a high in mid-February, cryptocurrencies plunged into a V-shaped reversal, erasing all of its early gains. 

In a flash, any hope of a prolonged bull market was completely crushed as Bitcoin lost more than 40% of its value in a single day, marking its worst trading day in history. 

In an earlier report, we studied the impact of this unprecedented crash and how it reshaped the Bitcoin Futures market. For more information, read:  What was the impact of the recent crypto-market capitulation on exchanges?

As Bitcoin bottom out at $3,800, crypto markets made a spectacular comeback, rallying more than 150% from its low. 

With the uptrend back on track, some analysts expect Bitcoin to continue its bullish momentum following the upcoming supply cut. Many believed that supply pressure may ease off as a result of halving, thereby boosting its price and adding scarcity. 

Additionally, the extensive media coverage and the positive impact this has had on bitcoin prices historically will continue to drive up demand.

Chart 1 - Performances by asset class

Source: Binance Futures

Year-to-date, Bitcoin has outperformed most major asset classes, recording gains of more than 25% since the start of the year. Notably, Bitcoin outperformed Gold and the US 10-year Treasury Note — asset classes that were widely expected to outperform in this unprecedented economic climate that we are experiencing today. Bitcoin’s resilience amid this crisis has positioned itself as the top-performing asset class of 2020 so far.

Binance marks a new milestone

As cryptocurrencies recover, most major exchanges saw a burst in trading activity and reported record-breaking volumes. Consequently, the sentiment around crypto markets remained increasingly bullish throughout April, as major exchanges like Binance contend with the demand surge. 

Binance recorded an all-time high of $12 billion within a 24-hour period. Likewise, Binance Futures also marked a new milestone, processing more than $10 billion in volume in the same period. BTC Futures ended the month on high as prices recorded 2 consecutive days of gains, moving by more than $1000.

Chart 2 - Daily trading volumes across perpetual contracts (BTC in blue, Alts in yellow)

Source: Binance Futures

In April, Binance was the only exchange to report growth in derivatives volume, continuing its growth trend for the third consecutive month. Binance’s derivatives market volumes increased 11.6% in April, to $108bn. 

Chart 3 - Monthly volumes across derivative exchanges

Source: CryptoCompare

In contrast, other derivatives exchanges recorded month on month decline in volumes. 

Major exchanges, namely Huobi, OKEx, and BitMEX recorded lower volumes by 10.5%, 31.4%, and 39.9% respectively. 

The shift in market share among the top 4 largest exchanges clearly showed how Black Thursday has dramatically changed the landscape of crypto-derivatives. Binance has quickly become a major derivatives player in a short space of time, with volumes growing steadily since the start of the year.

Open interest recovered to pre-selloff levels

With steady growth in volumes, open interest on Binance Futures has grown correspondingly, showing more exposure-driven trading activity. Open interest in Binance Futures’ BTC perpetual contracts marked a high of $400 million, indicating more capital in-flows and that traders are expecting a near-term rise in volatility.

Binance Futures saw a massive increase in open interest, soaring higher than the previous month and undoing all the lost positions shelved during the plummet in March. Open interest recorded an 81% increase in April, from $220 million to $400 million.

Chart 4 - Binance Futures open interest in April

Source: Binance Futures

Between February 10 to March 12, open interest on Binance Futures perpetual contracts declined from $450 million to under $120 million, owing to the rush of liquidations that downed the price of Bitcoin by over 50%. However, since then the tide has turned.

In less than two months, the OI increased by 233% from $120 million to $400 million, making a full recovery since the crash of Black Thursday.

Traders are in position ahead of halving event

Consistent with growing open interest, the number of long positions on Binance Futures has also seen an upward trajectory throughout April, suggesting that traders have positioned themselves ahead of the halving event.

Chart 5 - Long/short positions across top 5 largest perpetual contracts on Binance Futures

Source: Binance Futures

The long/short ratio on BTCUSDT, ETHUSDT, and BCHUSDT contracts have risen steadily during the month, with traders increasing long positions as Bitcoin broke above $8,000. Likewise, other large-cap altcoin contracts such as XRPUSDT and EOSUSDT have also experienced a similar uptrend, albeit with large volatility. 

Bitcoin rally stalls at $10k

The increase in open interest and long positions were somewhat expected as the “halving” hype grew by the day, drawing more traders and investors into the market. With new capital in-flows, Bitcoin eventually broke above the $10,000 mark, a price level which was last seen 2 months ago. However, Bitcoin struggled to stay above the psychological barrier of $10,000, as prices were forced down sharply, rejecting the supply zone that was previously established in mid-February.

Chart 6 - BTC daily price chart in April

Source: Binance Futures

Despite the sharp retracement from $10k, Bitcoin’s upward trend remains intact. Bitcoin is currently trading just above a key support level, a consolidation area that was formed prior to its breakout above $8k. If prices hold above that level, stronger chart-driven buying will likely emerge, lifting prices toward $10,000. 

A strong case for alternative assets like Bitcoin

Bitcoin halving has been a long-standing topic within the crypto community, with many expecting that the halving event to be a catalyst for a prolonged bull market. 

As economic uncertainties persist due to the COVID-19 pandemic, this upcoming halving will be different from the previous two events. In its second halving in July 2016, the global economy was in relatively better shape, unlike the dire economic conditions today. 

The deepening economic slump and soaring unemployment rates have forced governments and central banks around the world to inject trillions of dollars of stimulus to the financial system. 

As such, investors today have a strong reason to invest in alternative assets like Bitcoin, which are getting scarcer with every halving. Additionally, recent on-chain data suggests large investors are also accumulating coins in the run-up to the event. 

A recent example is Paul Tudor Jones, a famous macro investor, who bought Bitcoin as a hedge against the inflation he sees coming from central banks’ money-printing.

That said, we may expect to see a wave of profit-taking after the halving event as short-term traders exit the market.  However, notable pullbacks could be temporary with a great likelihood of Bitcoin making new highs in the coming months. The current COVID-19 crisis has substantially reduced the risk of a halving price dump and potentially set up a Bitcoin bull market.

Bitcoin is just moments away from a historic crossroads this week — what will the coming days have in store for traders and investors?