Bitcoin ETFs, which were recently launched, saw net outflows in their first week of operation from March 18 to March 22. A total of $888 million was withdrawn from the ETFs, a significant change from the previous week’s inflow of $2.57 billion. This has raised questions about the sustainability of Bitcoin’s rally to $70,000 on March 25.
Some market participants had suggested that institutional inflows were driving Bitcoin’s all-time high of $73,755 on March 14, which cast doubt on the 9% gains observed between March 23 and March 25. Adding to concerns is the fact that this rally occurred while the S&P 500 index failed to maintain its all-time high of 5,260 set on March 21.
venturefoundΞr, an analyst, noted on March 20 that Bitcoin was facing a reality check after FOMO from ETF investors drove it to a new high before the halving, leaving those who bought at the peak “trapped.” While a 15% gain from March 20 to March 25 doesn’t completely dismiss bearish concerns, Bitcoin’s market behavior suggests that its bullish momentum isn’t solely reliant on spot ETF inflows.
Some traders believe that the recent approval of a $1.2 trillion spending package by the United States on March 23 serves as a positive catalyst for Bitcoin. This is particularly significant considering the U.S. Federal Reserve’s forecast of three interest rate cuts throughout 2024. With the U.S. deficit expected to reach $1.6 trillion in 2024, the pressure on government debt repayment intensifies as interest rates remain above 5.25%.
The simultaneous rise of scarce assets like gold, Bitcoin, real estate, and the stock market indicates a weakening U.S. dollar. Ultimately, the performance of the North American currency against the euro and the British pound is less relevant as investors seek refuge from fiat currency devaluation.
It may be premature to conclude that Bitcoin’s price will continue to rise due to monetary expansion. However, bears who argue that the U.S. fiscal trajectory will lead to a recession, negatively impacting risk-on assets, miss a crucial point: Bitcoin’s price has already increased by 64% year-to-date in 2024, leaving those waiting for a dip behind.
To assess whether professional traders have become more pessimistic about Bitcoin following the disappointing spot ETF inflow data, one should examine BTC monthly futures contracts. In neutral markets, these contracts typically have a premium of 5% to 10% due to their longer settlement period.
Data shows that the annualized BTC futures premium was largely unaffected by the net spot ETF outflows. Currently, an 18% level is viewed as optimistic, suggesting buyers are willing to pay a premium to open leveraged long positions.
Analyzing the Bitcoin options market is crucial to determine if the March rally to $70,000 has increased the demand for strategies to hedge against potential price corrections. Typically, when traders anticipate a Bitcoin price drop, the skew metric exceeds 7%, while periods of enthusiasm often show a skew below 7%.
Since March 13, the BTC options 25% delta skew has remained in a neutral range, indicating a balanced demand for bullish and bearish options strategies. Importantly, there were no signs of panic as Bitcoin tested the $62,000 support on March 20.
The indicators from Bitcoin derivatives markets suggest a strong price resilience despite the recent spot ETF outflows, supporting the notion that the $70,000 support level is becoming stronger.
Please note that this article does not offer investment advice or recommendations. Every investment and trading decision carries risk, and readers should conduct their own research before making any decisions.