LTP Research

Table of contents

● Summary of October 2023

● Market Comments

● News

● November Volatility Day

● Appendix

October 2023 Summary

The cryptocurrency market showed a clear "risk appetite" trend in October. The circulating supply of the major stablecoin increased significantly during this period, reaching $842 million. Bitcoin, in particular, has shown surprising resilience to broader market corrections, with price growth exceeding 30%. In addition, the volatility of major cryptocurrencies has also increased significantly, with Bitcoin’s volatility increasing by 70% compared to the previous month.

Trading volumes on major cryptocurrency exchanges, especially spot trading, have experienced significant growth. Notably, Bitcoin spot trading volume on Binance and OKx exchanges increased by almost 100% compared to the previous month.

The rise in Bitcoin prices and increased cryptocurrency volatility in October can be partially attributed to the gamma squeeze phenomenon triggered by options traders. This was further highlighted by significant increases in spot trading volumes on Binance and OKx exchanges. Despite these bullish price movements, it is important to note that Bitcoin perpetual futures total open interest value has not surpassed its highs in August, when it exceeded $21 billion. At the end of October, open interest was valued at $19 billion, a 23% increase compared to the previous month. The total liquidation amount of short positions during the month was US$397 million, while the liquidation amount of long positions was US$260 million.

In addition, the U.S. Treasury's recent quarterly refunding announcement indicated that Treasury issuance will decrease in the fourth quarter. This is expected to exert downward pressure on bond yields, which may temporarily increase investors' interest in riskier assets. If the stock market recovers in November, it may lead to capital inflows into the cryptocurrency market, which may trigger higher trading volume and volatility.

1. Macroeconomics

1.1 Consumer Price Index (Year-over-year), Federal Funds Rate, Unemployment Rate, and Long-Term Treasury Yields

In September, the Consumer Price Index (CPI) was 3.7% on a year-over-year (YOY) basis. However, in October, bond yields continued to rise, with the 10-year yield approaching 5%, the 20-year yield reaching 5.3%, and the 30-year yield reaching 5.1%.

It is worth noting that the recent quarterly refunding announcement indicated that the issuance of Treasury bonds will be significantly reduced by $76 billion, resulting in a reduction in the supply of Treasury bonds in the market. Usually short-term Treasury bonds are expected to be absorbed by the funds of the Federal Reserve in the reverse repo market. The reduction in the issuance of long-term Treasury bonds may exert downward pressure on bond yields. Therefore, this may promote risk appetite in risky assets.

1.2 Bitcoin, Gold, S&P 500 (SPX), Nasdaq Composite and US Dollar Index Year-to-Date Returns

Major indexes continued to fall in October, with the S&P 500 and Nasdaq down 2%. Gold showed significant gains, rising 7.3% due to rising geopolitical risks. The U.S. Dollar Index remains stable at the 106 level. Bitcoin experienced a significant 30% gain, surpassing this year’s highs to reach the 35K level. The correlation between Bitcoin and the S&P 500 and Nasdaq fell below 0.2.

2. Cryptocurrency Market Review

2.1 Bitcoin and Ethereum Chicago Mercantile Exchange Bitcoin Futures Commercial Institutional Positions

During October, the group of commercial traders involved in trading Bitcoin futures on the Chicago Mercantile Exchange significantly reduced their combined net short position, from -1475 to -438. This correction coincides with Bitcoin’s recovery at the end of the month. In contrast, when it comes to Ethereum futures, commercial traders have chosen to maintain their collective net short position.

2.2 Bitcoin Price Model

In October, Bitcoin broke through the 200-week moving average and the short-term holder cost baseline. Long-term holder cost and realized price approached $20,000.

2.3 The circulating supply of stablecoins, Bitcoin market capitalization, Ethereum pledge amount and DeFI TVL (ETH) amount

In October, Bitcoin’s market capitalization reached its highest point of the year, reaching $670 billion. At the same time, the number of ether staked on the Ethereum network continues to rise, reaching 32 million. In October, stablecoin supply saw significant increases, with USDT increasing by $1 billion, USDC decreasing by $192 million, TUSD decreasing by $102 million, and BUSD decreasing by $237 million, resulting in a net increase of $842 million.

2.4 Binance Bitcoin and Ethereum Spot/Perpetual Futures Trading Volume

In October, BTCUSDT spot trading volume reached $34 billion, an increase of 62% from the previous month, which is a significant increase. On the contrary, the trading volume of BTCTUSD spot trading dropped to $3.56 billion, a significant drop of 71% from the previous month. At the same time, the total spot trading volume covering USDT, TUSD and FDUSD increased strongly by 90% compared with last month. Additionally, ETHUSDT spot trading volume showed a respectable 39% growth.

As for the perpetual futures market, BTCUSDT perpetual futures trading volume reached $324 billion, a significant increase of 58% from last month. Similarly, ETHUSDT perpetual futures trading volume reached $115 billion, showing a substantial 48% growth.

2.5 BYBIT Bitcoin and Ethereum spot and perpetual futures trading volumes

In October, BTCUSDT spot trading volume on the Bybit platform reached 302,000 BTC, a significant increase of 45% from the previous month. At the same time, the trading volume of BTCUSDT perpetual futures reached a huge US$124 billion, an increase of 65% compared with last month.

Similarly, ETHUSDT spot trading volume also showed significant growth, recording 2,968,000 ETH, a significant increase of 75% from the previous month. In addition, ETHUSDT perpetual futures trading volume reached a total of US$30 billion, an increase of 40% compared with last month’s data.

2.6 OKX Bitcoin and Ethereum spot and perpetual futures trading volumes

In October, the BTCUSDT spot trading volume on the OKX platform reached a massive $10 billion, up an astonishing 92% from the previous month. Meanwhile, the BTCUSDT perpetual futures trading volume reached $15 billion, up 63% from the previous month.

ETHUSDT spot trading saw a similar surge in volume, reaching $5 billion, a significant 53% increase from the previous month. In addition, ETHUSDT perpetual futures trading volume reached $8 billion, a significant 48% increase from last month’s data.

2.7 BTCUSDT.P (Binance) 3% Market Depth (October)

In October, as the price of Bitcoin rose, the liquidity of the Binance BTCUSDT perpetual futures trading pair dropped significantly. Specifically, on October 23, the market depth of 3% dropped to less than 10,000 BTC, hitting the lowest level observed in the past three months. However, as the price of Bitcoin stabilized at the end of the month, liquidity gradually returned to normal levels.

2.8 Binance 20 major futures trading pairs

In mid-October, LOOMUSDT’s volume surged, especially on the 13th and 14th of the month, accounting for 17% and 18% of all perpetual futures trading volumes on Binance during this period. After Bitcoin rebounded, we observed an increase in trading activity in the altcoins market, especially SOLUSDT, LINKUSDT, TRBUSDT, and PEPEUSDT. Bitcoin and Ethereum’s share of trading volume fell to 30% and 10%, respectively, while altcoins’ share of trading volume increased.

2.9 Binance 20 Top COIN-MARGINED Trading Pairs

Trading volumes based on coin-based trading pairs remain dominant on Bitcoin and Ethereum.

2.10 Bitcoin transaction flow (UTC)

In October, the highest trading activity for Bitcoin occurred during the overlap between London and New York trading hours, specifically from 13:00 UTC to 16:00 UTC. During this time, we observed that the London market accounted for 45.22% of total volume and 43.55% of total trades. Similarly, the New York market accounted for 36.19% of total volume and 37.14% of total trades. On the other hand, the Asian market contributed 23.47% of total volume and 24.22% of total trades during the month.

Additionally, an increase in trading activity was observed between 22:00 UTC and 23:00 UTC during the same month. It is important to take these times into account when analyzing trading patterns as they provide insights into the most active hours for Bitcoin on Binance.

2.11 Price Density - Binance Perpetual Futures Trading Pairs

The price density indicator is a valuable tool for assessing the price efficiency of various financial instruments. Higher price density readings indicate that asset prices show less volatility and follow cleaner trends. In October, XEMUSDT, CELOUSDT, and DGBUSDT showed the highest readings on this indicator, indicating a relatively stable price trend. In contrast, UNFIUSDT and POLYXUSDT showed the lowest readings, indicating more volatile price fluctuations.

It is important to highlight that the mean for all FAPI pairs is 5.13. This value is used as a reference point to assess the relative efficiency of individual pairs. Additionally, it is worth noting that only the top 10% and bottom 10% of the distribution are annotated on the chart, providing a focused view of the most and least efficient pairs in the dataset.

2.12 Annualized volatility of major cryptocurrencies (Part 1)

Among the popular cryptocurrencies in October, Bitcoin saw the largest increase in volatility, increasing by 78% by the end of the month, followed by SOLUSDT with a 41% increase. Ethereum and Ripple also recorded volatility increases of 36% and 40%, respectively. However, Litecoin's volatility remained low.

2.13 Annualized volatility of major cryptocurrencies (Part 2)

Among other altcoins, we observed a significant increase in volatility on several trading pairs, including LINKUSDT, AVAXUSDT, DOTUSDT, and DOGEUSDT. DOGEUSDT, in particular, has experienced the most significant increase in volatility. By the end of October, DOGEUSDT’s volatility increased by 136%.

2.14 Correlation matrix of the top 20 cryptocurrencies traded on Binance by total volume in October (perpetual futures market)

In October, BTCUSDT maintained the closest correlation with ETHUSDT, BCHUSDT, and BNBUSDT, while ETHUSDT maintained the closest correlation with BNBUSDT, ARBUSDT, MATICUSDT, and DOGEUSDT.

2.15 Bitcoin Price, Log Return, ATR and Closing Minus Moving Average (CMMA) Indicator

The closing price minus the moving average (CMMA) is a widely used indicator that measures how far an asset's price deviates from its moving average. It can be effectively used in conjunction with other assets that exhibit strong correlations to develop mean reversion strategies with a focus on fine-tuning and necessary adjustments.

Looking at the chart above, we can see that the CMMA indicator produced extreme readings on two specific dates, October 16 and 23. These extreme CMMA readings can serve as potential signals for trading opportunities, especially when comparing the CMMA value of one asset to the CMMA values ​​of other related assets. This method of analysis helps identify potential mean reversions, allowing traders to make decisions in their trading activities.

2.16 Ethereum Price, Log Return, ATR and Closing Minus Moving Average (CMMA) Indicator

Relative to BTCUSDT, ETHUSDT’s CMMA reading is more moderate.

2.17 CMMA of BTCUSDT minus CMMA of ETHUSDT

On October 16 and October 23, the market divergence between BTCUSDT’s CMMA and ETHUSDT’s CMMA saw significant extreme readings. High readings indicate that BTCUSDT outperformed ETHUSDT during those periods, while low readings indicate the opposite, where ETHUSDT outperformed BTCUSDT.

2.18 Total Bitcoin holdings rose 23% in October

In October, total open interest in Bitcoin perpetual futures experienced significant growth, increasing by approximately $3.5 billion, a significant 23% increase during the month. However, it is worth noting that despite the significant increase in open interest, the open interest reading did not exceed the peak on August 15, when open interest reached $21 billion.

Additionally, it’s worth noting that Galaxy Research’s Alex Thorn noted that gamma squeezes executed by options traders played a role in contributing to the high volatility and significant price gains during this period. This observation is supported by data showing a significant 90% increase in spot trading volume on Binance and OKx.

Gamma Squeeze:

Options Trading: Traders buy call options, betting that the price of Bitcoin will rise. The sellers of these options are usually market makers.

Delta Hedging: Option sellers need to hedge their positions to manage risk. They do this through a process called “Delta Hedging” which involves buying or selling the underlying asset (Bitcoin) to offset the risk of the option position. The amount they need to buy or sell is determined by the option’s “Delta”, which measures how the option price is expected to move for every $1 move in the underlying asset.

Gamma and Rapid Price Changes: "Gamma" measures how the Delta of an option will change for every $1 move in the underlying asset. When traders buy call options in large quantities and the price of Bitcoin starts to rise, the Delta of the option increases and Gamma becomes positive. This forces option sellers to buy more Bitcoin to maintain their hedge.

Feedback loop: As option sellers buy more Bitcoin, the Bitcoin price rises further. This in turn increases the Delta and Gamma of the option, requiring the seller to buy more Bitcoin. This creates a feedback loop that pushes up the Bitcoin price in a short period of time.

Buying Spot Bitcoin: To adjust their hedge positions quickly and efficiently, options traders may need to buy spot Bitcoin directly on the market, fueling the rapid rise in prices.

In summary, a gamma squeeze forces option sellers to adjust their hedge positions by buying more of the underlying asset, which can lead to a rapid rise in prices and increased volatility in the market. This is why option traders may need to buy spot Bitcoin during a gamma squeeze.

However, the sudden and dramatic price increase also triggered massive short liquidations in the perpetual futures market. Total short liquidations in October reached $397 million, while total long liquidations in the same period were $260 million.

In October, SOLUSDT showed an impressive price increase of 80%, becoming one of the standout cryptocurrencies, followed by LINKUSDT and CFXUSDT.

Among the second layer scaling (L2) cryptocurrencies, MATICUSDT performed well and outperformed other L2 cryptocurrencies.

In the month of October, INJUSDT has been leading the pack and performing well, with a price increase of 85%. Following closely behind are RUNEUSDT and ZRXUSDT, which also showed significant price gains during the same period.

In October, GALAUSDT showed significant price growth, rising by 34%, outperforming other tokens in the GameFi and Metaverse concept categories.

In October, the MEME token sector showed a notable high volatility, mainly influenced by the increased risk appetite triggered by the sharp rise in Bitcoin prices. Within this sector, FLOKIUSDT and PEPEUSDT performed well.

2.24 Seasonal Changes in S&P 500, Nasdaq, Gold, and Bitcoin

Past performance is not indicative of future results. November is generally a good month for both the stock and cryptocurrency markets.

News

Bitcoin gains legal recognition as digital currency in Shanghai, China

Taiwan bans unregistered foreign crypto exchanges from operating

SEC’s Motion to Appeal Loss in Ripple Case Is Denied

Ripple obtains digital asset license from Monetary Authority of Singapore

Coinbase granted full license in Singapore

Current laws sufficient to charge Sam Bankman-Fried for alleged fraud: DOJ

Hong Kong to list ‘suspicious’ crypto platforms in wake of JPEX scandal

US lawmakers urge IRS to implement crypto tax reporting requirements before 2026

European regulator: DeFi comes with significant risks as well as benefits

Hata receives in-principle approval to be fifth Malaysian digital exchange

California 'BitLicense' Bill Signed by Gov. Newsom

Tether Freezes 32 Crypto Addresses Linked to Terrorism, Warfare in Israel and Ukraine

Bitcoin Jumps to $30K, Then Dumps, as False Spot ETF Approval Report Circulates

Genesis Ordered to Comply With Terra Subpoena Within 5 Days

Binance to Stop Accepting New U.K. Users to Comply With Ad Rules

California Assembly Passes Crypto Regulation Bill That Requires Bank-Issued Stablecoins

Franklin Templeton Joins Spot Bitcoin ETF Race

SEC Won’t Appeal Loss in Grayscale Case, Boosting the Odds GBTC Can Become a Bitcoin ETF

Senators Urge IRS to Speed Up Plan to Snag Crypto Tax Cheats

FTX Plans to Return 90% of Customer Funds, but There's a Catch

Binance.US Halts Direct Dollar Withdrawals

Uniswap Foundation targets $62M in additional funding

Coinbase Trading Volume Slows Further as Crypto Winter Continues: Berenberg

EU Formally Agrees on New Crypto Tax Data Sharing Rules

New York Attorney General Sues Gemini, DCG, Genesis; AI's Role in the Future of Web3

Coinbase Picks Ireland for EU Hub With MiCA Law Set to Open European Market

SEC Drops Charges Against Ripple CEO Garlinghouse, Chairman Larsen

Binance withdrawals spike to $1.4B in 24 hours amid continued executive departure and regulatory struggles

Hong Kong regulator updates policy for virtual asset activities

FinCEN proposes designating crypto mixers as money-laundering hubs

Banks’ crypto exposure must be disclosed — BIS’ Basel Committee

PetroChina Completes First International Crude Oil Trade in Digital Yuan: Report

FCA warns about common issues with crypto marketing

BlackRock’s spot Bitcoin ETF now listed on Nasdaq trade clearing firm — Bloomberg analyst

Bitcoin volatility triggers over $147 million in liquidations

European Banking Authority, ESMA issue crypto entity suitability guidelines

November Volatility Days

appendix

Figure A. Fed balance sheet, US Treasury general account (TGA), reverse repurchase agreements (RRP), ECB total assets, and US Treasury yields

The recent quarterly refunding announcement indicated a significant reduction in Treasury issuance of $76 billion, resulting in a reduction in the supply of Treasury bonds in the market. Typically, short-term Treasury bonds are expected to be absorbed by the Federal Reserve's funds in the reverse repo market. Reduced issuance of long-term Treasury bonds is likely to exert downward pressure on long-term bond yields. Therefore, this may encourage risk-on sentiment in risky assets.

Figure B. Bitcoin liquidation heat map (Hyblockcapital)

Liquidation zone below market price:

$22,000 - $24,000.

Source: Hyblock Capital. As of November 1, 2023.

It is provided for informational purposes only and should not be considered investment advice or a recommendation to buy, sell or hold any specific security or cryptocurrency.

Disclaimer

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