Bitcoin pushes to $ 57,000 as Fed Taper fears leveraged funds will boost shorts

Bitcoin jumped to a new five-month high early Monday and extended its two-week price rally, although Friday’s weak US labor market report failed to dampen expectations that the Federal Reserve will begin scaling back its bond-buying program in November. The market also ignored the data showing a supposedly declining positioning of leveraged funds in the futures market.

The cryptocurrency surged to $ 57,000 during early European trading hours and hit its highest level since mid-May, according to CoinDesk 20 data. Prices rose 13% for the week that ended on Sunday, posting their second consecutive double-digit weekly gain.

Bitcoin’s continued resilience to normally declining macro factors could be attributed to the U.S.’s improved prospect of approving a futures-based Bitcoin Exchange Traded Fund (ETF) this month.

“The positive sentiment at BTC was driven in part by expectations of a possible approval for a futures-based Bitcoin ETF in the near future. Other factors contributing to the increase include continued inflows from institutional investors and US Securities and Exchange Commission chairman Gary Gensler, who told Congress that the agency had no plans to ban crypto, “Coinbase said Institutional in his weekly email.

U.S. employment data released on Friday showed the number of non-farm workers increased by 194,000 in September, compared to the average analyst estimate of 500,000. However, the unemployment rate fell to an 18-month low of 4.8%, which kept the Fed on track to start pulling back on the crisis-era stimulus packages in November and hike rates through mid-2022.

“Friday’s headline-grabbing NFP job losses did little to dampen Fed expectations about the tightening / tightening of expectations. For example, the December 2023 euro-dollar futures will continue to fall, in line with the latest trend in the market revaluation of the US yield curve towards the Fed forecasts in the September dot plots. That’s bullish for the dollar, ”ING analysts stated in their daily market analysis.

The story goes on

Recent reports of the Soros Foundation’s involvement in Bitcoin and the disclosure of Bitcoin purchases by U.S. Senator Cynthia Lummis (R.-Wyo.) May also have contributed to the optimistic mood.

The Commitments of Traders (COT) report released on Friday by the U.S. Commodity Futures Trading Commission (CFTC) found that hedge funds and various types of money managers who borrow money to trade were increasing their short positions from 18,000 to 22,000 in. the week ended October 5th.

The uptrend is not necessarily an absolute short position and could be due to renewed interest in a cash and carry arbitrage strategy. The method involves buying the asset on the spot market and taking a short position on the futures market when futures contracts are traded at a significant premium to the spot price. The futures prices converge on the expiry date with the spot prices, which gives a carry trader a risk-free return.

The premium on the Chicago Mercantile Exchange-based front-month futures rose from an annualized 1.5% to nearly 12% in the seven days ended October 5, according to data from Skew.

Although Bitcoin appears to be on a solid footing, some investors expect its price to decline temporarily. The week-long put-call skew has turned positive, reflecting demand for short-term downside protection or put options.

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