Bitcoin futures data highlights investors’ bullish outlook, but there’s a catch.

The price of Bitcoin (BTC) increased by 26.5% in October and several indicators, including the BTC futures premium and the grayscale GBTC discount, reached a one-year high.

For this reason, it is challenging to present a bearish thesis for BTC as the data reflects a post-FTX-Alameda research crash recovery period and is influenced by recent interest rate increases by the US Federal Reserve.

Despite the positive indicators, Bitcoin's price is still 50% below the all-time high of $69,900 it hit in November 2021. Bitcoin's 108% year-to-date gain highlights the fact that Bitcoin adoption as an alternative hedge is still in its early stages.

It is important for investors to analyze the macroeconomic environment before deciding whether Bitcoin futures premiums are improving, open interest and GBTC fund premiums are returning to normal or the first signs of institutional investor interest.

US budget issue boosts Bitcoin's institutional hopes.

On October 30, the US Treasury announced plans to auction off $1.6 trillion in debt over the next six months. However, a key factor to watch is the size of the bid and the balance between short-term Treasury bills and long-term notes and bonds, CNBC reported.

Billionaire and Duquesne Capital founder Stanley Druckenmiller criticized Treasury Secretary Janet Yellen's focus on short-term debt, calling it “the biggest mistake in Treasury history.” This unprecedented increase in debt levels in the world's largest economy has led Druckenmiller to praise bitcoin as an alternative store of value.

Bitcoin futures surged to their highest level since May 2022 at $15.6 billion due to institutional demand driven by inflation in the economy. In particular, CME has become the second largest trading platform for Bitcoin derivatives, with $3.5 billion in BTC futures.

Moreover, the Bitcoin futures premium, which measures the difference between 2-month contracts and the spot price, has reached its highest level in more than a year. These fixed-month contracts are sold at a small premium to separate markets, indicating that sellers demand more money to delay settlement.

Demand for long BTC positions increased sharply as the futures contract premium jumped from 3.5% to 8.3% on Oct. 31, surpassing the neutral-to-energy limit of 5% for the first time in 12 months.

Further strengthening the assumption of institutional interest is the Greyscale GBTC fund's offer to narrow its diversification into comparable BTC holdings. The instrument was trading at a discount of 20.7% on September 30, but has since reduced this deficit to 14.9%, as investors speculated that the adoption of a Bitcoin exchange-traded fund (ETF) in the U.S. is highly likely.

All is not rosy for Bitcoin, and volatility risks loom.

While the data looks undeniably positive for Bitcoin, especially compared to previous months, investors should take exchange-issued numbers with caution, especially when dealing with unregulated derivatives contracts.

US interest rates rose to 5.25%, and post-FTX currency risks increased, making the 8.6% Bitcoin futures premium smaller. For comparison, CME Bitcoin's annualized premium stands at 6.8%, Comex Gold futures trade at a 5.5% premium, and CME S&P 500 futures trade at 4.9% above the spot price.

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Bitcoin's futures premium, in a broader context, is not excessively high, especially considering that Bloomberg analysts give the Bitcoin spot ETF 95% approval. Investors are reminded of the overall risks in cryptocurrency markets, as highlighted by US Senator Cynthia Lammis' call for the Department of Justice to take “swift action” against Binance and Tether.

The approval of the spot Bitcoin ETF could create selling pressure from GBTC holders. You can exit the $21.4 billion GBTC holdings after years of grayscale management restrictions and annual fees of more than 2%. Basically, Bitcoin's positive data and performance reflect reversion to the mean rather than excessive optimism.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.