Pro Bitcoin Traders Caught By Surprise After BTC Price Rises 11% In 8 Days
Bitcoin (BTC) price has gained 11% in the eight days since January 23rd after breaking the $38,500 support.
The move surprised many investors, including BitMEX exchange co-founder Arthur Hayes. Hayes predicted that rising US inflation and fears of geopolitical instability would drive away risk assets, including Bitcoin.
In fact, before it rose to $43,000 on January 30, many traders expected volatility to push the price down.
Grayscale ETF, Mt. Gox risks are weighed against the value of BTC
Bitcoin failed to hold the $43,000 support on January 31st, but the current price level has remained flat for 30 days, indicating that whatever caused the negative impact has been removed in time.
Some analysts argue that fear, uncertainty, and doubt (FUD) could sell off the grayscale space's bitcoin exchange-traded funds (ETFs) and ultimately from customers who receive their coins from the defunct Gox exchange.
It's worth noting that other spot Bitcoin ETF issuers — including Fidelity, BlackRock and BitWise — are fending off much of the selling pressure coming from Grayscale Bitcoin Trust.
Still, Hayes has a valid point from a macroeconomic perspective, as U.S. inflation and growth data have made investors less likely to expect an interest rate cut from the U.S. Federal Reserve in March.
Adding to the anxiety was the January 26 announcement from the US government regarding the sale of 2,934 BTC worth nearly $120 million that had been recovered from the Silk Road hack. However, as analysts note, this amount is not significant as recently launched Bitcoin ETFs are attracting more than 4x this amount daily.
Therefore, it is important to resolve whether professional traders have gained or lost from the price increase. There is a common belief among cryptocurrency investors that whales and market makers have an edge in predicting large price movements, giving them an edge over retail traders.
This notion holds some truth as advanced quantitative trading software and servers with strategic positioning are involved in short-term trading. However, this does not exempt professional traders from heavy financial losses when the market shakes.
Bitcoin derivatives indicate that traders are not ready for $43,000
To get an idea of how whales and arbitrage desks are positioned, you can compare the current demand with the situation on January 23rd.
Whalers and market makers prefer monthly Bitcoin futures contracts due to lack of liquidity, which makes these instruments 5% to 10% higher than regular spot markets to ensure longer settlement periods.
The Bitcoin futures premium (base rate), which measures the difference between two-month contracts and the spot price, has hovered between 8.5% and 10% over the past nine days, meaning those investors have been a bit bullish. As professional traders become more optimistic, the BTC futures premium rises to more than 10 percent.
Traders need to analyze the options markets to understand why the recent price rally surprised them. A delta skew of 25% is a critical indicator that arbitrage desks and market makers are paying an underlying or ineffective hedge. In short, if traders anticipate a drop in the price of Bitcoin, the skewness measure will increase by more than 7%, and happiness levels will have a negative 7% skew.
Related: Bitcoin Must Adjust Speed Like ETFs Drive
BTC options 25% skew from a negative price estimate of 8.5% on January 23 to a neutral position of -5% on January 31. Basically, those whales and market makers were expecting a price crash but changed their view. The $40,000 support level has gained strength.
Traders are unlikely to expect a drop to $38,250 and an 11% gain over the next eight days. Simply put, professional traders have not benefited from recent price increases.
What's more, when those traders are caught by surprise and neutral about BTC futures, they will be forced to add (buy) long if the rally continues.
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.
