Bitcoin (BTC) has experienced a significant surge, with its price increasing by 8.5% in just 24 hours to reach $71,926 on May 21. This jump brings Bitcoin very close to its all-time high, with just a 2.5% difference. Additionally, BTC derivatives are indicating favorable conditions for reaching new all-time highs in the coming weeks.
The sudden increase in BTC price is believed to be driven by growing optimism surrounding the likelihood of a U.S. spot Ethereum exchange-traded fund (ETF) being approved, as well as a general market trend seeking protection against inflation. This trend has also led to new all-time highs for gold and the S&P 500 on May 20.
Many traders are curious about whether the recent surge in Bitcoin’s price was caused by excessive use of leveraged long positions and what the implications of a spot Ether (ETH) ETF would be.
The regulator’s stance has shifted following the U.S. Senate’s decision to overturn the SEC’s Bulletin 121 on May 16. This resolution had imposed strict capital requirements on banks holding customer digital assets. Senior Bloomberg ETF analyst Eric Balchunas has raised the approval odds for the Ethereum spot ETF from 25% to 75% on May 20, influenced by political pressure. Prior to the Senate’s vote, President Biden had suggested that he might use executive power to veto any resolution that would reverse the SEC’s policy. However, the Senate’s decision in favor of cryptocurrency adoption prompted a reevaluation at the White House.
The SEC’s chair, Gary Gensler, had previously been hesitant to classify Ethereum as a non-security or indicate any likelihood of approving its spot ETF. However, on May 20, the landscape changed when the SEC reportedly requested updates to the spot Ethereum ETF filings from exchanges like NYSE and Nasdaq.
Despite potential competition from Ethereum, the introduction of its spot ETF is expected to have a positive impact on the cryptocurrency sector, creating a more favorable environment for investment. The decreasing anti-crypto regulatory stance in the U.S. could encourage more investment managers, including pension funds, to view the sector more favorably. In the past, regulatory uncertainties have negatively affected Bitcoin’s price.
The increase in Bitcoin’s value on May 21 has also led to higher demand for BTC long positions through monthly futures. Typically, these derivatives have a premium of 5% to 10% over the spot price to account for their extended settlement periods. Data shows that the BTC futures premium has reached 14%, the highest in five weeks. This indicates moderate bullish sentiment, contrasting with the extreme optimism seen on April 1 when the futures premium reached 25%.
Analyzing the options market provides further insight into the current dynamics. The 25% delta skew helps assess the influence of leverage on recent price trends. In a market that is excited about rising prices, the skew is usually around -7%, as put (sell) options become cheaper. The current -8% skew in Bitcoin options markets reflects a healthy market sentiment, especially considering the 23% increase in BTC price over 19 days while the options market has remained relatively stable.
The data from the Bitcoin derivatives market suggests that there is still room for strategic leverage among Bitcoin buyers without the fear of excessive optimism, which could result in significant liquidations during unexpected price drops. This offers a promising outlook for further price increases in the weeks ahead, with the possibility of reaching new all-time highs above $74,000.
According to popular crypto analyst Game of Trades, the bullish momentum could propel Bitcoin up to $80,000, considering “key moving averages” and “channel support.”
It’s important to note that this article is for general information purposes only and should not be considered legal or investment advice. The views expressed here are the author’s alone and do not necessarily reflect the views of Cointelegraph.