Despite the 23% gain, Bitcoin options traders are still not bullish
Bitcoin (BTC) has gained 23% in the five days to February 28, but BTC options traders are reluctant to take a bullish stance. This is due to the fact that Bitcoin last lost 5% weekly losses for more than five weeks when it was five weeks ago, which leads to a lower need for protection.
Traders fear a decline in Bitcoin ETF earnings and a recession in the US
There has been concern among investors that the large volume of declines entering the space in Bitcoin exchange traded funds (ETFs) could trigger a price correction. This suggests that these traders are unconvinced by the current bull run or find that they do not need to capitalize on macroeconomic uncertainty.
In the year On February 28 alone, the US Bitcoin ETF saw $673 million in net inflows, accumulating a total of $7.4 billion in net deposits since its launch on January 11. Bloomberg senior ETF analyst James Seifert reported this data, highlighting that only 150 ETFs have surpassed the $10 billion mark in assets under management. In particular, BlackRock's iShares Bitcoin ETF already boasts more than $9 billion in assets, said Nate Geracchi, founder of the ETF Institute.
Interpreting this information brings two different perspectives. Some argue that such flows may not be sustainable in the long run, either as demand slows down as the price of Bitcoin rises, or because there is a limit to the appetite for cryptocurrency exposure. Conversely, from a bullish point of view, some traders believe in a “snowball effect” where the rising price of Bitcoin is “more motivating,” as suggested by JP Morgan analysts.
JPM makes a strong point here. ETF returns are a snowball effect. The Bitcoin narrative is stuck. Blackrock knows this. Everyone sees it clearly. Now they are going to deploy the world's best sales team in raising the money. We are still in Round 1. Cut in half in pic.twitter.com/AEjCEXPNEN
— Beanie (@beaniemaxi) February 29, 2024
Trader beaniemaxi expressed his opinion on the X social network, suggesting that both BlackRock and the rest of the ETF issuers have incentives to deploy their sales teams because “the Bitcoin narrative is stuck.” This indicates that there is still considerable distance to cover before the flow rate begins to decrease. The post highlights Bitcoin's halving trigger, which shows that ETF issuers have a compelling sell argument.
However, all of these assumptions may be invalidated if the economy enters a severe recession or investors are forced to offload profitable positions to meet higher financing costs elsewhere. Economist David Rosenberg predicts that the US recession will be 85 percent by 2024. He emphasized that the stock market “suffers a lot” during a recession.
Bitcoin derivatives reflect the balanced demand between bulls and bears
To gauge the comfort level of professional traders with Bitcoin, despite February's impressive 45% gain, one needs to examine the BTC options markets. A 25% delta skew serves as an informative indicator, indicating when arbitrage desks and market makers are overpaying for upside or downside protection.
Bitcoin options' 25% delta skew has remained neutral since February 20, fluctuating between -7% and +7%. This shows the equilibrium price between call (buy) and put (sell) options. Interestingly, six days after Bitcoin failed to breach the $52,500 mark, traders became optimistic. This highlights the anxiety among cryptocurrency investors in stock levels.
Although market makers are offering lower protection relative to exposure, it is important to cross-check data from BTC futures markets to gauge the position of top traders. This indicator consolidates positions in spot, perpetual and quarterly futures contracts, providing an overview of how bullish or bearish these traders are.
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According to the data, top traders on Binance and OKX remained relatively neutral until February 26, when Bitcoin prices rose above $53,000 and gradually increased their net long positions. This evidence partially contradicts the Bitcoin skew data, but it also points to the abrupt termination of leveraged betting by forced liquidation of short positions.
Additionally, long-to-short ratios on OKX have not even reached monthly highs, making it challenging to argue that professional traders are currently bullish. So, if the flow of spot ETFs continues, there's a chance traders who are currently skeptical will find them.
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.
