🚄 Off the rails

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Open for business. 

This morning, crypto journalist Eleanor Terrett broke that MoonPay secured a New York BitLicense. 

It’s yet another confirmation that times have changed, and that places like New York are taking a friendlier approach to crypto companies. It’s also another tick in the box for NYC as America’s crypto hub, if you ask me. 

For MoonPay itself, it’s a sign that it’s ready to compete on a level that’s, so far, been out of reach for the majority of crypto (as Terrett herself pointed out, only a few crypto-native firms have the license at this point).

🐬 Deep dive

It’s been a minute since we’ve discussed the markets, and I’m quite intrigued by the cautious atmosphere that’s been adopted since bitcoin broke through all-time highs last month. 

K33 noted that CME exposure has “risen modestly,” but it’s nowhere near its previous peaks. 

As you can see in the chart above, open interest for CME bitcoin futures is in a slight downtrend.

The good (and potentially risky) news is that “offshore perpetual markets have seen growing open interest nearing late 2024 highs, but with ambiguous funding rates, setting the stage for heightened liquidation risks and potential volatility spikes in both directions.”

Overall, the derivatives environment has gotten a bit of a chill despite us heading into summer, with analyst Vetle Lunde noting that the perpetual future open interest dropped by 15,000 bitcoin since the end of May. The silver lining here, though, is that overall we’re seeing open interest remain near April highs at 278,000 BTC. 

I know what you’re thinking: Data insights are great, but what do they mean?

As I mentioned in Monday’s Empire, May can be a seasonally weaker month, which leads into the summer months when everyone is busy (hence “sell in May and go away,” if you’re familiar with traditional markets). 

So let’s zoom in on CME here.

“While exposure from both direct participants and leveraged ETFs on CME has seen an uptrend over the past month, both cohorts see considerably lower exposure than during prior activity peaks. This is indicative of broad passivity and modest froth, despite BTC’s solid performance over recent months,” Lunde noted. 

However, notional open interest in bitcoin perpetuals was on the rise, and remains on an uptrend…something that could — like we noted above — suggest potential volatility. 

“There is no clear one-directional bias to read into this activity. In essence, this creates a structure that enhances liquidation risks in either direction thus setting the stage for accelerated volatility ahead,” Lunde wrote. 

Basically, prepare yourselves for volatility, because it’s crypto and, well, that’s par for the course here. But keep in mind we’re heading into the seasonally weaker summer months.

With the hefty amount of institutional interest we’ve witnessed, there is a possibility that we see crypto act a bit more like the traditional markets during seasonally weaker months.

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• World Liberty Financial sent some wallets $47 (IYKYK) of its USD1 stablecoin. 

• Despite rumors and reporting, Ripple CEO Brad Garlinghouse said his firm never seriously pursued a Circle acquisition. 

• Truth Social is going through the steps to launch a bitcoin ETF.

One trend I’ve been noticing is the appetite for perps (we touched on this semi-recently).

This leads me to Rails, which announced this morning that it raised $20 million across two rounds. It’s a hybrid exchange, launching on Kraken’s L2, Ink. 

Investors include Slow Ventures, CMCC, Kraken, Quantstamp, and others. 

The promise is that Rails will redefine perpetual contract trading through a hybrid execution model, and now you know why my interest was piqued. Especially when Rails CEO Satraj Bambra told me that he thinks perps trading is here to stay. 

“I think the crypto trading audience is a lot more sophisticated in the sense that they know how to long, they know how to short. They don’t trade both sides of the market. And that sort of comes by default on being in a very volatile market,” he explained. Part of it can simply be that some traders have realized it’s not worth it just to buy and hold spot crypto.

He expects it to “root itself” into traditional finance.