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