Bitcoin Futures Basis Surges Amid Softer US Inflation Data: Zerocap Insights

Read more in this recent article on The Block.

20 May 2024: In the wake of last week’s release of softer US Consumer Price Index (CPI) data for April, Bitcoin’s three-month annualized basis has experienced a notable surge, exceeding 10% over the weekend. This development, as reported by The Block, indicates a significant shift in market sentiment, with traders demonstrating increased confidence in future Bitcoin prices.

Positive Market Dynamics

The rise in Bitcoin’s futures basis highlights a growing optimism among traders. This metric, which measures the premium on Bitcoin futures contracts compared to the current price, serves as a strong indicator of market expectations. As the basis increases, it suggests that traders are willing to pay more for Bitcoin in the future, reflecting their belief in a forthcoming price rise.

Zerocap analysts have observed this trend closely. In a recent market report, they noted, “We see fundamental orderflow driving the market higher, with the bitcoin three-month annualized basis having shot above 10% over the weekend, and perpetual funding rates are on the rise, showing that the market is building positive sentiment.”

Influence of US Inflation Data

The softer US CPI data for April has played a critical role in this market shift. Lower-than-expected inflation figures reduce the likelihood of extended high interest rates, making riskier assets like Bitcoin more appealing to investors. This environment fosters a more favorable outlook for cryptocurrencies.

The data from Velo Data charts corroborate this trend, showing a substantial increase in Bitcoin’s basis rate since the CPI data release. Specifically, the three-month annualized basis has risen on major exchanges: Deribit at 11.4%, Binance at 10.47%, and OKX at 9.68%. These figures underscore the heightened confidence among traders following the inflation report.

Bitcoin’s Resilience

Since the release of the CPI data, Bitcoin has remained largely above the $66,000 mark. This stability is indicative of a broader bullish sentiment that extends beyond cryptocurrencies to traditional markets. Major US equity indexes reached all-time highs last week, fueled by the same underlying optimism.

The positive sentiment has been pervasive, influencing global markets as well. Gains have been recorded across major European and UK equity indices, as well as in markets in Tokyo, Australia, and South Korea. This widespread optimism is a testament to the impact of the lower inflation data.

Navigating Future Risks

Despite the current positive sentiment, it is essential to remain vigilant about potential risks. Zerocap analysts have highlighted the possibility of underlying inflation spikes combined with low economic growth, which could pose significant challenges for the US Federal Reserve and other central banks.

“This is a risky situation for the U.S. Federal Reserve and other Central Banks, but for now markets seem to be winding up for a move higher,” the analysts added. This cautionary note underscores the importance of monitoring economic indicators closely, even as the market trends upward.

Current Market Overview

As of Monday morning, Bitcoin was trading flat at $67,029, reflecting a period of stability. The GM 30 Index, which tracks the performance of the top 30 cryptocurrencies, also saw a slight increase of 0.18% . These figures indicate a cautious optimism prevailing in the market, with traders and investors continuing to watch economic developments closely.

Conclusion

The recent surge in Bitcoin’s three-month annualized basis following the release of softer US inflation data underscores the dynamic relationship between macroeconomic indicators and cryptocurrency market sentiment. While the current outlook is positive, with increased trader confidence and rising prices, it is crucial to remain aware of potential risks, particularly those related to inflation and economic growth.

Disclaimer: This article includes a summary of content originally published on The Block. The information is intended for informational purposes only. Zerocap does not endorse or approve any specific content or viewpoints contained in the original article.

For more detailed analysis read our Weekly Crypto Market Wrap.

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