Peter Brandt, a popular veteran trader and CEO of the proprietary trading company Factor LLC, recently commented on Goldman Sachs that could potentially restart its cryptocurrency desk.
We classic cars learned that when @GoldmanSachs steps into a niche market, it’s time to protect your money. $ BTC pic.twitter.com/tHfRkS4igb
– Peter Brandt (@PeterLBrandt) March 1, 2021
On December 21, 2017, a similar Bloomberg piece announced that Goldman Sachs would set up a cryptocurrency trading desk even though the bank was “still trying to resolve security issues”.
While Brandt’s diagram seems significant, it is important to understand that such speculation has been going on for several months. The Wall Street Journal reported Goldman Sachs’ intention to do so on October 2, 2017.
Even if we don’t take into account the exact date, Goldman Sachs has apparently ditched those plans to launch its Bitcoin (BTC) trading desk. More importantly, however, there aren’t many similarities between the 2017 bull run and the current market in terms of their structures.
Bitcoin market capitalization, volume at the end of 2017, billion USD. Source: TradingView
Notice how the BTC volume has increased from an average daily volume of $ 2 billion in November 2017 to $ 14.6 billion by the end of the year, a seven-fold increase. Incoming retail demand was so impressive that the Binance, Bitfinex, and Bittrex exchanges temporarily turned off new users.
Binance accounts were even sold directly to other users by users when no new logins were accepted. In other words, there is currently no similar retail hype in Bitcoin as there was at the end of 2017. In fact, the current bull cycle appears to be being driven by institutions that seem to be tapping BTC on every dip.
Bitcoin market cap, volume, USD billion. Source: TradingView
The average trading volume of $ 66 billion per day on February 22nd, when Bitcoin’s market cap peaked at $ 1.09 trillion, had remained relatively constant for the past six weeks.
A seasoned technical analyst like Brandt should therefore have added the caveat that volume is the most relevant market participation indicator – which he frequently highlights in his other analyzes.
Understanding the fundamentals of futures markets is essential to making up for this difference. Derivatives exchanges charge either perpetual futures longs (buyers) or shorts (sellers) every eight hours to maintain a balanced risk. This indicator, known as the Funding Rate, turns positive when long positions require more leverage.
Bitmex BTC Perpetual Futures weekly funding rate, end of 2017. Source: TradingView
As can be seen from the graph above, buyers were willing to pay up to 40% per week to take advantage of their long positions. This is completely untenable and a sign of extreme optimism. Any market downturn would have resulted in cascading liquidations, with BTC price accelerating downward.
BitMEX BTC Perpetual Futures weekly funding rate. Source: TradingView
Such exorbitant interest rates no longer exist, although the current weekly funding rate of 4% was the highest since June 2019.
Finally, it should be noted that CME and CBOE futures contracts were launched in December 2017. As Cointelegraph astutely put it at the time, “This unprecedented event could have a significant impact on the Bitcoin economy.” In retrospect, this appears to have been the highest signal of euphoria the bears have been waiting for. Hence, Goldman Sachs’ withholding was likely the effect, not the cause.
While Brandt has become famous in the cryptocurrency space for anticipating the over 80% correction after the Bitcoin price spike in 2017, his track record has been less impressive lately.
In summary, there is no evidence to support Brandt’s theory other than a single event that occurred once in the eleven years of Bitcoin trading. Not to mention the rumors about Goldman Sachs 2017 cryptocurrency trading desk had been going on for a while.
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