Crypto-Crash Aftershocks Hit Traders With 50% Premiums Vanishing

Speculative investors may have been pushing meme stocks “to the moon” earlier this week, but their crypto counterparts have been coming back down to Earth en masse. Hedging activity is on the rise and bullish bets are finding limited demand — even with Bitcoin still almost 40% below its peak. These are rare times of restraint among day traders, who until last month’s $500 billion crash were famously in the throes of bullish mania. Another way of looking at it: A slew of market excesses fueled by leverage are getting snuffed out.

“Price and narrative are the fundamentals in cryptocurrency markets — right now, both are shaken,” said Nico Cordeiro, chief investment officer at Strix Leviathan, a digital-asset investment firm. Take the gap between Bitcoin futures market and the spot price. At the height of the mania in April, the premium shot to 50% on an annualized basis — meaning investors could lock in a massive profit with a simple convergence trade. It’s now collapsed to just 9%, according to data provider Skew, which tracked rolling three-month contracts on crypto exchange Binance.

Volume in derivatives typically exceeds spot activity on most days, on strong demand to speculate with easy-to-trade instruments that offer leverage — often 100 times — to boot. All that means bulls almost always outnumber bears. Now, crypto conviction is falling. Support from Bitcoin’s star promoter Elon Musk has wavered and there are new regulatory hurdles in China and the U.S. For the past two weeks, prices have wobbled around $40,000, unable to move much in either direction.

Retail demand for long positions across the curve is vanishing. The futures-spot spread is narrowing on BitMEX and other crypto platforms to bring it closer to the level on the Chicago Mercantile Exchange, an institutionally oriented platform. It all signals harder times for quants like BKCoin Capital who have notched outsize gains with simple arbitrage strategies that involve going short futures and long the spot.

Crypto-Crash Aftershocks Hit Traders With 50% Premiums Vanishing, Bloomberg, Jun 4