Bitcoin (BTC) experienced a significant increase of 21.2% between February 7th and February 15th as traders attempt to establish support at $52,000. This surge is believed to be a result of increased inflows into spot Bitcoin exchange-traded fund (ETF) instruments and concerns over the macroeconomic situation. However, Bitcoin derivatives metrics do not align with the excessive optimism seen in the market, indicating that professional traders remain skeptical about the sustainability of the bullish momentum.
The $2.4 billion net inflow into spot Bitcoin ETFs in the past seven days can be partially attributed to initial signs of a slowdown in the U.S. economy, particularly in the consumer sector. According to the Census Bureau, U.S. retail sales declined by 0.8% in January compared to the previous month. Additionally, both Japan and the United Kingdom entered technical recessions after experiencing two consecutive quarters of declining gross domestic product (GDP).
Traders are questioning whether institutional demand for Bitcoin will continue, considering the unfavorable economic data for risk-on markets. During times of uncertainty, investors often turn to fixed-income assets for protection. To determine the confidence of large investors and arbitrage desks in Bitcoin’s $52,000 support, it is important to analyze BTC derivatives markets, starting with the perpetual contract funding rate.
The funding rate for Bitcoin’s perpetual contracts has remained relatively stable at 0.25% per week over the past week, indicating balanced demand and a neutral market. In contrast, in late 2023, the metric was at 1% per week, signaling excessive optimism. Interestingly, Bitcoin’s price at the end of the year remained largely unchanged compared to the previous two weeks at $42,500.
Whales and market makers typically prefer monthly contracts due to the absence of a flexible funding rate. As a result, these instruments trade 5% to 10% higher relative to regular spot markets to justify the longer settlement period. Therefore, to understand the positioning of professional traders, it is necessary to analyze the Bitcoin futures premium, also known as the basis rate.
Data shows that traders turned bullish after Bitcoin’s price surpassed $48,000 on February 11th, with the basis rate rising above 10%. However, this movement is not comparable to the premium observed at the beginning of 2024, indicating that excessive leverage is not being used to support the markets, which is a positive indicator.
To assess whether traders were surprised by Bitcoin’s bullish momentum, it is important to examine the balance between call (buy) and put (sell) options. An increasing demand for put options typically indicates traders focusing on neutral-to-bearish price strategies.
Bitcoin options activity has remained relatively stable in the past two weeks, with the put-to-call options volume averaging 0.60. This suggests that the demand for put options was 40% lower, indicating a bullish sentiment. Furthermore, there has been no significant increase in the demand for hedging against a market downturn.
Overall, all Bitcoin derivatives indicators point to moderate bullishness, with no signs of FOMO (fear of missing out) or the excessive use of high leverage that often occurs when traders become reckless. Additionally, bears have little incentive to suppress Bitcoin’s price, given the consistent inflow into spot Bitcoin ETFs, which could potentially lead to gains above $52,000.
It is important to note that this article does not provide investment advice or recommendations. Every investment and trading decision carries risk, and readers should conduct their own research before making any decisions.