Research Summary
The report discusses the increased demand for long exposure through futures and perpetual swap derivative contracts due to bullish spot price action in October. It highlights the rise in BTC’s future-implied spot-yields and the surge in open interest in the perp of each major asset. The report also notes the impact of this demand on the price of the perpetual, leading to the largest funding rates paid from long positions to shorts since November 2021.
Key Takeaways
Bullish Spot Price Action Fuels Demand
- Impact of Bullish Spot Price Action: The report indicates that the bullish spot price action in October has significantly increased the demand for long exposure through futures and perpetual swap derivative contracts. This demand has driven the price of the perpetual up faster than the underlying spot price.
Future-Implied Spot-Yields Lead
- Leading Future-Implied Spot-Yields: BTC’s future-implied spot-yields have taken the lead with a 14% annualised carry for the 1-month tenor, compared to ETH’s lower but climbing 12%. This shows that BTC has led the long demand through the futures contract.
Open Interest in Perp Explodes
- Surge in Open Interest: Open interest in the perp of each major asset has exploded to all-time highs for ETH and levels on par with the 2021 run to an all-time high for BTC. This indicates a strong demand for spot exposure through derivatives contracts.
Perpetual Swap Contracts’ Prices Above Spot
- Perpetual Swap Contracts’ Prices: The demand and increase in open interest in the perpetual swap contracts of both majors have kept the derivative contracts’ prices above those of spot. This has resulted in large funding rates paid by long positions to short positions to hold their long exposure.
Highest Funding Rates Since November 2021
- Funding Rates: The report notes that the current values of funding rates paid from long positions to shorts are the highest seen in over a year. However, they are still far below the incredibly high values observed during the bullish mania in 2021.
Actionable Insights
- Monitor the Spot Price Action: Given the impact of bullish spot price action on the demand for long exposure through futures and perpetual swap derivative contracts, it would be prudent to keep a close eye on these trends.
- Investigate the Potential of BTC’s Future-Implied Spot-Yields: With BTC’s future-implied spot-yields leading the way, there may be potential opportunities to explore in this area.
- Assess the Impact of Open Interest: The surge in open interest in the perp of each major asset indicates strong demand. Understanding the implications of this trend could provide valuable insights.
- Consider the Impact of Perpetual Swap Contracts’ Prices: The fact that the prices of perpetual swap contracts are above those of spot could have significant implications for long and short positions.
- Keep an Eye on Funding Rates: With funding rates at their highest in over a year, monitoring these rates could provide important insights into market trends and potential strategies.
