The Coinbase premium turned positive in early July after a period of concern following a dip in mid-May. According to research from Kaiko, this could hint at a resurgence of institutional interest in Bitcoin. The Coinbase premium, a key indicator of institutional sentiment in the cryptocurrency market, measures the difference between hourly bitcoin prices on Coinbase’s BTC-USD pair and Binance’s BTC-USDT pair.
On July 1, crypto analyst David Lawant highlighted the worrying lows of the Coinbase premium. He drew parallels to a previous occurrence where a major crypto rally ensued months after the premium had turned negative. Lawant’s analysis suggested that this metric could once again signal an upcoming market rally. By July 15, the premium surged to a two-month high, reinforcing Lawant’s bullish outlook.
Historically, the Coinbase premium has been closely linked with major market events. The collapses of Terra and FTX significantly reduced institutional demand for Bitcoin, causing the premium to dip into negative territory. However, the recent positive shift in the premium signifies an increase in institutional interest in BTC. Given that institutional trading volume makes up over 80% of activity on Coinbase, the premium is often viewed as a measure of institutional sentiment.
Kaiko observed that the recent rise in the Coinbase premium may have been influenced by the increased volatility of Tether’s USDT. This volatility coincided with the European Union’s implementation of the Markets in Crypto-Assets Regulation (MiCA), imposing stringent requirements on stablecoin issuers. Tether, currently non-compliant with these regulations, faced restrictions for European Economic Area (EEA) users by major cryptocurrency exchanges. Consequently, USDT lost its peg to the USD at the end of June but managed to recover by early July on most exchanges despite continued struggles on less liquid platforms like Binance.US.
Market analyst HornHairs interprets bitcoin’s largest Coinbase premium in two months as a sign that the current rally is primarily driven by spot buying. This suggests that the rally, if sustained, will be led by altcoins within the Bitcoin and Ethereum blockchains, given their prominence as the first and second-largest networks in the crypto industry. When bitcoin commands a higher price on the largest U.S. exchange, it indicates significant buying pressure from U.S. investors. Spot-driven rallies are considered healthier for the market, providing a more stable foundation for future growth. Spot-driven rallies are typically seen as more sustainable and less risky compared to those driven by speculative derivatives products.
The positive turn in the Coinbase premium in early July signifies a resurgence of institutional interest in Bitcoin. Historical trends and the influence of Tether’s volatility have played a significant role in shaping the market outlook. With spot buying driving the current rally, there is optimism for sustained growth in the cryptocurrency market, particularly within altcoins associated with the Bitcoin and Ethereum blockchains.
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