Optimism surrounding the approval of a spot bitcoin exchange-traded fund (ETF) application has sparked a significant increase in BTC’s price, with a nearly 49% gain since October. The Securities and Exchange Commission (SEC) is expected to review and decide on multiple applications simultaneously for logistical and consistency reasons.
When it comes to spot BTC trading, the majority of activity is concentrated on several exchanges, namely Coinbase, Binance, Bybit, and OKX. These exchanges account for approximately 65% of spot BTC trading, with Binance alone representing 35.5% of the market. Bybit, OKX, and Coinbase make up 11.3%, 9.2%, and 8.9% respectively.
An interesting trend in BTC trading is the decreasing average order size, which has been observed since early 2021 and currently stands at around $1,652. While smaller order sizes are typically associated with retail customers, it is important to note that institutions often divide trade orders into smaller ones to minimize slippage. Therefore, it would be imprudent to solely attribute recent trading patterns in BTC to retail customers based on order size analysis alone.
Coinbase’s third-quarter 2023 trading summary indicates a decline in volume for three out of the past four quarter-over-quarter measures. Both retail and institutional traders have experienced a similar decrease in volume over the course of the year, with retail customers trading approximately $4.2 billion and institutional customers trading around $24.7 billion in the third quarter.
Moving on to Bitcoin futures markets, CME Group’s BTC futures open interest has reached $4.55 billion, accounting for roughly 25% of the total BTC open interest. This level of open interest hasn’t been seen since the second quarter of 2022.
The majority of CME BTC futures positions are held by asset managers and leveraged funds. Asset managers tend to exhibit a long bias, reflecting their longer time horizon for investing. On the other hand, hedge funds and commodity trading advisers (CTAs) typically trade with a shorter time horizon and engage in basis trading and hedging.
Institutional investors are increasingly active in the crypto space, as noted by CME Group. The average number of large Bitcoin open-interest holders, with at least 25 contracts, reached an all-time high during the week of November 7, 2023.
The funding rate, which aligns perpetual futures prices with spot prices, has been trending higher alongside the spot price of BTC. This suggests a bullish sentiment and bias among traders.
The relationship between BTC prices and consumer interest has recently decoupled. If the assumption that consumer interest is solely driven by retail customers holds true, it implies that either retail customers are trading without conducting research or institutional investors are exerting an outsized influence on prices.
Institutional investors appear to hold a constructive sentiment towards BTC. The upward shifts of the futures curve in each month of the fourth quarter of 2023 indicate bullish activity and a long bias among these investors.
While the approval of a BTC ETF is already factored into current prices, there is a possibility that traders may take profits off the table following the announcement, leading to a reversion to the mean in the days that follow. Afterward, the market is likely to shift its focus to the halving event scheduled for April.
In conclusion, the anticipation of a spot bitcoin ETF approval has driven significant price gains for BTC. Spot BTC trading is concentrated on a few major exchanges, with Coinbase, Binance, Bybit, and OKX accounting for the majority of activity. The average BTC order size has been decreasing, but it would be misleading to attribute recent trading patterns solely to retail customers based on order size analysis. Institutional investors are becoming more active in the crypto space, as evidenced by CME Group’s data. The funding rate and futures curve suggest a bullish sentiment among traders. The market’s attention is expected to shift to the upcoming halving event after the ETF announcement.