Gather round children I’m about to explain what is likely going on with otc desks and how it’s persisting this futures funding bias and general curvature malaise.

OTC desks hedge a fair bit of their flow with futures, futures are more liquid, cheap, have cool uis, run by colorful characters and have leaderboards, check ftx and mex Circle trade still on those but hasn’t been active for a year now so I’m not some rando making this up

If a counterparty lifts an otc desk for btc they generally cover that risk in the futures market and then wait till there’s offsetting flow later and sell said futures to balance their book on the exchange this is normally all well and good and balances out closely over time

Now if the desk gets slammed with 1 way flow, like net buying over and over and there is no selling to counteract they end up axed long futures while settling trades out of inventory, they need to always send coins to the buyer right

The issue with all this is to be long bitcoin futures against bitcoin collateral you need to overcollateralize the fuck out of that position because if the market reverses you are long an asset with the same asset posted as collateral

Lot of guys died because of this risk imbalance in March on the death march on mex as their collateral reorder and cascading liquidations decimated everyone, also the network is always gonna be hosed when you need it most so coin won’t get there

Anyway this is all important because it means you can’t as an otc desk be persistently super long futures so your hand is forced to the spot markets much faster than if your flow is net 1 sided selling and you can sit comfy.

Worth noting here ftx and cme let you collateralize your position in cash and their curve is much more contango than Okex/mex/huobi where dominant model is crypto collateral, also CME just has monster flow right now cause It’s the new new asset

The big thing here is spot markets are gonna lead once the net activity of the desks get axed, this is happening now, tack on a furious bid on Coinbase and you have a futures market that’s persistent short biased with its traders that’s going to pay Longs the whole way

If you wanna know the top it’s when that stops and the Kong’s start paying shorts in size and the curve goes contango like wild, like right before world died in March annualized yield on the curve was north of 30% everywhere, for historical context that’s dumb high