Bitcoin (BTC) underwent a significant price correction, dropping to $59,300 after reaching an unprecedented high of $69,150 on March 5. The current challenge lies in reclaiming the $64,000 support level. Despite the short-term volatility, professional traders in the BTC derivatives market maintain a slightly bullish stance.
Interestingly, Bitcoin’s correction coincided with a 2.6% retracement in the Nasdaq-100 index futures, which hit a record high of 18,377 on March 4. This decline in the tech-heavy stock market was triggered by a consumer research firm’s estimation that Apple iPhone sales in China had declined by 24%.
Additionally, the shares of New York Community Bancorp (NYCB) continued to decline after the lender replaced its CEO due to “material weaknesses” in internal controls. Investors sought refuge in gold, causing the precious metal to gain 4.2% in just four days and reach its all-time high.
The fact that Bitcoin reached a new all-time high has attracted media attention, potentially leading whales to consider shorting the cryptocurrency or encouraging holders to reduce their positions in response to criticism from Bitcoin critics.
However, attributing the sharp price correction solely to the funding rate on Bitcoin perpetual contracts is not entirely accurate. The funding rate can stay above 1% per week for an extended period without necessarily forcing bullish traders to close their positions. Some traders do not have access to traditional funding, while others are not concerned about the fees given the favorable market conditions.
Moreover, retail traders should not be seen as a reliable indicator of overheated markets, as cryptocurrency investors naturally exhibit a bullish trend. Professional traders, on the other hand, prefer monthly future contracts to avoid variable funding rate costs. In neutral markets, these contracts usually trade at a premium of 5% to 10% to account for their extended settlement period.
Data shows that the BTC futures premium remained at 15% throughout the $5,765 price move on March 5. This suggests that whales and market makers remain bullish despite the correction, indicating that there is little difference whether $62,000 or $64,000 becomes a support level. The BTC futures premium did not exceed 20% even during the all-time high, indicating cautious bullish sentiment among traders.
To further assess market sentiment, one should also consider Bitcoin options metrics. The 25% delta skew, which measures the pricing of upside or downside protection, currently stands at -7%. This places it between neutral and bullish markets. The last time Bitcoin option traders were overly optimistic was on Feb. 19 when the indicator reached -12%. Therefore, the options market supports the notion that professional traders are not convinced that Bitcoin will break above $70,000 in the near future.
During times of uncertainty, investors typically seek refuge in short-term bonds and cash positions. This could explain the absence of excessive optimism as Bitcoin reaches an all-time high. However, the current situation may be different, as the inflow of capital into the spot Bitcoin exchange-traded fund (ETF) has diverted some investments from gold. This suggests that BTC’s price could sustain bullish momentum regardless of how traditional markets perform.
It is important to note that this article does not provide investment advice or recommendations. All investment and trading decisions involve risk, and readers should conduct their own research before making any decisions.