Join Delphi Research today and immediately get access to our full Member Portal!
Join Delphi Research today and immediately get access to our full Member Portal!

Futures Catch a Bid, CME Traders Go Ham, Punk Ownership Decentralizes

Jul 21, 2021 · 5 min read

By Ashwath Balakrishnan, and Jeremy Ong

Market Update

BTC is up 5.7% today, attempting to bounce back into it what seems like an eternal price range. Naturally, this means crypto twitter has decided the bull-run is back on! Altcoins are also bouncing here; with RUNE, AXS, COMP, and MATIC some of the top performers.

Futures Basis On The Rise

  • Annualized basis for futures contracts a month away from expiry saw an asymmetric rise against BTC’s spot price. As short-dated futures had yet another brush with backwardation, traders bought up these contracts to send it back into a minor contango.
  • CME basis usually lags that of crypto-native exchanges since a large portion of CME traders position themselves to profit off the spread between futures price and spot price. But interestingly, CME futures basis saw the most aggressive reversal, indicating traders here bought up cheap futures contracts yesterday.
  • Note: Basis is the difference between the spot price and futures price of an asset. In this case, since basis is rising fairly aggressively against spot, it means traders are buying up futures and the market leans bullish. Since the 1 month futures — a near-dated contract — is being bought aggressively, this further implies that the market is positioning for a move up in the short to mid term.

Rare Aggression at CME

  • On July 19, CME’s Bitcoin futures had $1.25 billion of open interest following a wipeout over May and June. On July 20, this number shot up 2x to $2.5 billion.
  • According to the CME’s commitment of trades, which highlights certain entities positioning, institutions are now positioned slightly net long after an extended period of being net short. Leveraged funds are still net short, as expected, but they’ve closed out some amount of their positions. Leveraged funds likely use CME futures to hedge their spot exposure, so this isn’t an inherently bearish data point.
  • Overall, CME’s fresh futures contract creation is a slightly bullish narrative, considering BTC had a mini pump to reclaim its range a few hours after the New York session ended. As noted above, futures basis on CME hit negative levels yesterday before posting a sizeable reversal. All the data points to people buying up futures contracts as BTC spiked below the price range it’s sat in for months now.

Perpetual Protocol’s Path to PMF

  • Perpetual Protocol uses an internal arbitrageur to balance the market price of perpetuals on its exchange. But the impact of the bot has reduced significantly over time as Perpetual Protocol attracted a massive amount of organic volume.
  • While some may see reliance on an in-house arbitrage bot as far from ideal, the bot provides a much needed service for the exchange. Over time, as the exchange grows, we expect to see third-party abitrageurs fill that gap.
  • There was a small increase in the bot’s share of exchange volume in recent weeks, which is expected given the drop in exchange volumes across the board. However, as volume inevitably picks up, the bot’s share of volume will drop as well. Further, Perpetual Protocol’s v2 will no longer necessitate the bot — marking a major improvement to the protocol’s design.
  • Note: This chart is from a Delphi Institutional update we published yesterday. If you’re an Institutional subscriber, you can read the full report here. And if you aren’t, consider upgrading here.

More Punk Owners Than Ever Before

  • There are now over 2,000 unique addresses that own a CryptoPunk. This number has more than doubled over the course of 2021. The vast majority of addresses own a single Punk, but there are several that own two or more Punks. Unique addresses holding Punks has a ceiling of 10,000 (assuming every address owns only one) since there’s a supply cap of 10,000 Punks — all of which have been minted.
  • As we noted in a previous Delphi Daily, Punk prices have been fairly resilient given the collapse in transaction volume. I think it’s fair to expect Punks to establish a strong price floor somewhere here, or maybe a tad bit lower. But sub $10k punks look extremely unlikely, unless ETH’s price gets sent to the depths of hell.

Notable Tweets

Charm Finance will launch a WBTC/USDC passive LP vault for Uniswap v3.

Interesting perspective from mgnr on the proposal for Sushiswap to raise capital by issuing call options.

An idea for Aave to loosen its collateralization limits to low-risk borrowers.


Join Delphi Research today and immediately get access to our full Member Portal!

Join Now  or  Sign in