Bitcoin (BTC) saw a significant 23% increase in value over a five-day period ending on February 28th. However, despite this positive trend, BTC options traders are hesitant to take a bullish stance. This hesitation is partly due to the fact that Bitcoin hasn’t experienced a 5% weekly loss in over five weeks, leading traders to seek downside protection.
Traders are concerned about reduced inflows into spot Bitcoin exchange-traded funds (ETFs) and the possibility of a recession in the U.S. There is growing worry among investors that the heavy inflow into these ETFs may decline, which could trigger a price correction. This indicates that traders are either unconvinced by the current bull run or don’t see the need for leverage in light of the macroeconomic uncertainty.
On February 28th alone, U.S. Bitcoin ETFs saw a net inflow of $673 million, bringing the total net deposits since their launch on January 11th to $7.4 billion. This information, reported by Bloomberg’s senior ETF analyst James Seyffart, is significant considering that only 150 ETFs have ever surpassed the $10 billion mark in assets under management. Notably, BlackRock’s iShares Bitcoin ETF already has over $9 billion in assets, according to Nate Geraci, co-founder of the ETF Institute.
This data can be interpreted in two ways. Some argue that these inflows may not be sustainable in the long run due to slowing demand as Bitcoin’s price rises or because there is a limit to the risk appetite for cryptocurrency exposure. However, from a bullish standpoint, some traders believe in a “snowball effect” where the increasing Bitcoin price further inspires ETF sales, as suggested by JP Morgan analysts.
Trader beaniemaxi expressed their opinion on a social network, suggesting that both BlackRock and other spot ETF issuers have incentives to deploy their sales teams because the “Bitcoin narrative is sticking.” This implies that there is still a significant distance to cover before the inflows begin to diminish. The post also highlights the Bitcoin halving trigger as a compelling selling argument for ETF issuers.
However, all these hypotheses could be disproven if the economy enters a severe recession or if investors are forced to liquidate profitable positions to meet increased financing costs elsewhere. Economist David Rosenberg predicts an 85% likelihood of a U.S. economic recession in 2024 and emphasizes that the stock market would suffer greatly in such a scenario.
To understand the sentiment of professional traders towards Bitcoin, despite its impressive gains in February, it is essential to examine the BTC options markets. The 25% delta skew, which indicates whether arbitrage desks and market makers are charging excessively for upside or downside protection, has remained neutral since February 20th, fluctuating between -7% and +7%. This suggests a balanced pricing between call (buy) and put (sell) options and highlights the anxiety among cryptocurrency investors during accumulation phases.
In addition to examining the options markets, it is crucial to analyze data from BTC futures markets to understand the positioning of top traders. By consolidating positions across spot, perpetual, and quarterly futures contracts, a comprehensive view of how bullish or bearish these traders are emerges. Data from Binance and OKX, two major exchanges, indicates that top traders remained relatively neutral until February 26th when they gradually increased net long positions as Bitcoin’s price surpassed $53,000. This partially contradicts the Bitcoin skew data but could be attributed to the forced liquidation of short positions, indicating the end of bearish bets.
Furthermore, traders at OKX have not even reached their highest monthly level in long-to-short ratios, making it challenging to argue that professional traders are currently bullish. Therefore, if the influx of spot ETFs continues, there is a likelihood that skeptical traders will need to catch up.
It is important to note that this article is for general information purposes only and should not be taken as legal or investment advice. The views expressed here are the author’s alone and do not necessarily reflect the views of Cointelegraph.