Bitcoin Price Fails to Reach $45K, But Derivatives Markets Show Traders’ Optimism
Bitcoin (BTC) price broke above $40,000 for the first time since April 2022, roughly two weeks ago, on December 4th. In less than 48 hours, there was a rally towards $44,000, but this resistance level proved to be stronger than expected. Traders are now asking if a correction to $41,000 is the most likely scenario.
The last 16 days have seen a rejection at $44,000 and subsequent retests of $41,000 support. Interestingly, these moves come as bitcoin exchange-traded fund (ETF) opportunities surged in January after several issuers revised their plans to comply with a cash-return model demanded by securities regulators, according to Bloomberg ETF analysts.
BlackRock, among others, updated their S-1 registration statements to exclude non-cash payments known as ‘in-kind' payments. Basically, the creation and redemption of ETF shares happens in cash instead of allowing participants to pay or be compensated in Bitcoin, although the fund itself can hold the actual cryptocurrency.
Traders question whether the Bitcoin ETF's accepted position will trigger a price collapse.
Some traders suggest that the spot ETF list follows a ‘buy the rumour, sell the news' system. This means the smart money is waiting for the launch, allowing most of the profits to happen before proper regulatory approval.
Here's my take on price action on the Spot #Bitcoin ETF Confirmation:
I think we'll see a sudden spike, then a sharp dip in approvals. A news event will sell.
As we approach the trading day, we begin to drift upward.
Price action will only be massive once we start…
— British HODL ❤️❤️ (@BritishHodl) November 13, 2023
A post from @BritishHodl on the X social network goes one step further, adding that bitcoin prices will see a “sudden spike, followed by a sharp dip in approval.” However, the trader added that “a proper assessment of the price should come after 3 months” after the ETF's approval and offered a long-term optimism.
To determine whether whales and market makers remain bullish, one should examine the Bitcoin Futures premium known as the ‘Basis rate', a preferred instrument among professional traders due to its constant funding rate. In independent markets, these contracts must trade at a premium of 5% to 10% to achieve their extended settlement period.
Since December 1st, the BTC futures premium has remained above the 10% neutral-to-power threshold, indicating a slightly excessive appetite for taking advantage of long positions (buying). This data indicates that despite the recent rejection at $44,000, traders have not changed their positions and the recent correction on December 21 was no different.
Regulatory uncertainty may explain the balanced demand between BTC put and call options.
Investors should analyze the options markets to gauge whether the recent correction has affected traders' optimism. A 25% delta skew indicator is indicative when arbitrage desks and market makers demand a premium to provide inverse or lower protection.
If traders expect Bitcoin's price to fall, the skewness will increase to more than 7%, and periods of euphoria will result in a negative 7% skew.
The Bitcoin options market tells a slightly different story as call (buy) and put (sell) options traded at the same price level last week. In December, the price of Bitcoin rose by 15.4%, one would have expected an increase in demand for lower protection, but that was not the case. Thus, the data show moderate confidence among bulls but insufficient premium for call options.
Related: ‘In Argentina, contracts can be settled in Bitcoin' – Minister of Foreign Affairs
Despite their excitement regarding the potential approval of the Bitcoin ETF, the risk of regulation remains high, especially for cryptocurrency exchanges. On December 15, the US Securities and Exchange Commission (SEC) rejected Coinbase's petition to regulate cryptocurrency, saying the existing rules are sufficient.
This regulatory uncertainty will limit investor appetite and consequently strengthen the $44,000 resistance level. From a broader perspective, Bitcoin's 164% year-to-date gain far outpaced the stock market's 23.2% gain as measured by the S&P 500 index. But, on the bright side, Bitcoin Wells doesn't seem concerned about the latest decline as measured by BTC derivatives opening up room for further gains ahead of the actual ETF approval.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
