BTC Basis Surges, Then Dips Ahead of US Presidential Election
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In this report:
Market Update: BTC Basis Surges, Then Dips Ahead of US Presidential Election
Trend: TIA Funding Rates Flip Positive Following Highly Anticipated Unlock
Trend: Funding and On-Chain Rates Hold Steady as US Presidential Election Nears
Market Update
In October, Bitcoin's price rose from $63,492 to $70,198, a gain of over 10%. This was driven by factors such as expectations of rate cuts, the end of Mt. Gox sell pressure, and notably, the market pricing in a potential Trump victory, which is expected to bring crypto-friendly policies.
The front-month Bitcoin basis, an indicator of institutional demand for leverage, climbed steadily, spiking to nearly 25% before normalizing to around 10% by month-end.
A spike in the basis signals strong demand for leverage, pushing front-month futures above the spot price. This creates an arbitrage opportunity for trading desks, which buy the spot and sell futures to capture the spread. As a result, short-dated lending rates rise, as desks prefer risk-free basis trades over external lending, driving up over-the-counter (OTC) lending rates.
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Key Trends...
TIA Funding Rates Flip Positive Following Highly Anticipated Unlock
TIA saw its highly anticipated token unlock on October 30th, releasing approximately 176 million tokens—roughly 80% of the circulating supply at the time. This event was widely anticipated, with VCs and early backers actively hedging their positions in the perpetual markets, at times driving funding rates to as low as –400%. Following its peak price of around $20 in March, TIA had dropped to $4.76 by the end of October, a decline of nearly 76% from its highs.
Throughout the summer and into the fall, TIA remained one of the most sought-after tokens as traders sought alternative hedging strategies. Many looked for OTC fixed borrow deals rather than exposing themselves to the volatility of funding rates. This high demand, coupled with a limited supply of spot tokens, pushed forward rates into the 40%+ range. However, since the unlock, funding rates have flipped positively, signaling a potential end to the demand for hedging as traders now begin to cover their short positions with the newly unlocked tokens.
Funding and On-Chain Rates Hold Steady as US Presidential Election Nears
In contrast to the basis, both on-chain and funding rates have remained relatively stable leading up to the election. When compared to March, the cost of borrowing USDC on Aave's Ethereum V3 has stayed around the 6% mark, with only brief spikes, a significant decrease from the double-digit rates seen in March. On-chain rates also serve as a useful gauge for leverage, as traders tend to drain liquidity pools, pushing rates above the optimal utilization level. This typically results in higher borrowing costs, but that hasn’t been the case recently. The stability in rates isn't due to a lack of demand for leverage; rather, it reflects an equivalent increase in supply.
Since March, the total amount of USDC borrowed has risen from $721 million to over $1.4 billion by the end of October, an increase of $679 million. This demand for borrowing has been met by a parallel rise in supply, with the amount of USDC available for borrowing growing from $769 million in March to $1.48 billion by October's end, an increase of $711 million. This balanced supply and demand has helped keep borrowing rates stable, despite rising overall demand.
Similarly, BTC and ETH perpetual funding rates have steadily climbed toward more optimal levels, but we haven't seen the same explosive rise as we did in March, when rates surged above 40% as traders sought to leverage up. Funding rates are a key indicator of leverage demand and have a significant impact on the cost of short-term capital. While rates have increased, they haven't reached the extremes seen earlier in the year, reflecting a more balanced market despite ongoing interest in leverage. Funding rates will be a key indicator to watch as we approach the election.
Notable News
BlackRock CEO Issues Stark Fed Warning Amid $3.3T BTC Price Prediction
BTC Bounces Above $67K as Traders Navigate a ‘Liquidity Hunt’ Post-Surge
Celestia's TIA Braces for Price Volatility Amid $900M Token Unlock
MicroStrategy announces plan to raise $42 billion to buy more bitcoin
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