- Derivatives trading the reason why the price of Bitcoin has been doing Bart Simpson chart patterns
- If current growth rate continues, Bitcoin daily trading volume will surpass that of US equity in under four years
Bitcoin price has been trolling us for weeks now, moving in a rather tight range, always hovering below or above USD 10,000 treating it either as a psychological resistance level or a weak support area. And now, according to at least one analyst, we could be seeing this pattern repeating itself for a long time yet.
Su Zhu, the CEO of Three Arrows Capital, says that this all is happening because crypto traders are now taking all their trading with derivatives exchange, rather than doing the actual buying and selling of Bitcoin, as they used to happen in the Bitcoin early days.
Bloomberg published an article about Bitcoin's "bart" pattern today:
"Bitcoin’s quick rise & fall this week had some investors scratching their heads."
The barts are here to stay. pic.twitter.com/bSwAoKhWrc
— Luke Martin (@VentureCoinist) June 4, 2020
Zhu says that these “Bart Simpson” patterns — so named for the way they resemble the hairline of the famous cartoon character Bart Simpson — now forming on the Bitcoin price chart will perhaps become more familiar and regular occurrences. Talking to Luke Martin on the Coinist Podcast, he said that they were for sure going to part of our current trend. The CEO believes these movements are unique to crypto markets because of all the trading going on at derivatives exchanges:
“There’s sort of a bounty put out to be able to liquidate this flow […] when people see an opportunity, they can come and take advantage of pockets of illiquidity or a way to get the price to move to a certain point.”
But Zhu doesn’t equate this with a manipulation of the market, which is what some critics of crypto are saying. He simply says that the fact Bitcoin isn’t physically settled on derivatives, it means that the vast majority of Bitcoin are held offline by the exchanges. He concluded:
“…it’s not being traded around, so a very small amount of the Bitcoin that are out there are moving the price… If that were not there, as a bounty, I think there would be far fewer Barts.”
Whether this is true or not, it does appear to be a growing certainty that Bitcoin trading is not just here to stay, but will continue to experience incredible growth in the coming years. According to a recent report by cryptocurrency data analyst Coin Metrics, trading interest in the world’s largest digital asset by market capitalization would soon see it equal and then outpace the US equity market at current growth rates.
Citing Bitcoin as an asset class with incredible growth potential, Coin Metrics notes that it still suffers from low trading volume when compared to more conventional markets:
“The interpretation is that Bitcoin, in its current state, is most comparable in size to a large capitalization stock rather than a distinct asset class.”
Nevertheless, the fact that it still has a US dollar spot market daily volume of some USD 4.1 billion, it pales in comparison with American equity or bond markets which are over USD 446 billion and USD 893 billion respectively. The biggest market? Foreign exchange at USD 1.98 trillion. Bitcoin is barely 0.2% of the Forex market!
All the same, Coin Metrics projections show that Bitcoin can still grow at current rates and achieve exponential uptakes of daily volume. At this rate, it says it needs less than four years to surpass the daily volume of all US equities, and another year after that to surpass US bonds daily volume.
Derivatives markets aren’t taken into account though, of which it says:
“If reported volumes are to be believed, gaining exposure through derivatives markets may be the most efficient path. However, crypto derivative markets are still developing, and market participants must contend with a confused mixture of differing contract specifications.”
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