Bitcoin (BTC) investors are puzzled by the lack of bullish momentum following the launch of the spot Bitcoin exchange-traded fund (ETF) on January 12. While several factors have been identified as possible explanations, none are definitive. However, there is speculation that Bitcoin whales are preparing for a bull run, as leveraged long positions using BTC margin at Bitfinex have reached a staggering $3 billion.
Some analysts, including BitMEX founder Arthur Hayes, believe that investors had anticipated the U.S. Federal Reserve (Fed) to cut interest rates as early as March. However, recent inflationary events have reduced the likelihood of this happening. Hayes suggests that by not renewing its Bank Term Funding Program (BTFP), the Fed will put U.S. regional banks to the test, draining liquidity from risk markets and negatively impacting assets like Bitcoin. The longer interest rates remain high, the less incentive investors have to exit fixed-income positions. Hayes predicts that Bitcoin’s price will fall below $35,000 by March, which partially explains the recent bearish momentum. However, this hypothesis does not account for the resilience of other risk markets such as the SPDR Bloomberg High Yield Bond ETF (JNK), which is trading below its highest level in five months.
Bitcoin investors are also concerned about the outflow from the Grayscale GBTC Trust ETF. Since January 18, incumbents of the spot Bitcoin ETF, including BlackRock, Fidelity, ARK 21Shares, and Bitwise, have captured 84% of the equivalent Bitcoin that has left GBTC. However, it seems unlikely that the average daily net outflow of $87 million has caused Bitcoin to drop below $40,000 and reach its lowest levels since December 2023.
The increasing BTC longs at Bitfinex, amounting to $3 billion, are also a cause for concern. The fact that these positions have increased by 10% since January 17 raises questions about their impact on the Bitcoin price. It is possible that these margin trades are market-neutral, as the borrowers may not be leveraging their positions with the proceeds. There may be some arbitrage involving derivatives instruments or the spot ETF.
Bitfinex currently has 74,738 BTC margin longs, significantly higher than the 445 BTC margin shorts. This distortion is due to the sub-0.01% BTC annual margin funding rate, which provides substantial incentives for borrowing. However, it is important for traders to cross-reference the data and consider the distinct risks, liquidity, and availability of each exchange.
Looking at top traders on different exchanges, there is a mix of long and short positions. While top traders at OKX increased their long-to-short ratio until January 22, it reversed as BTC dropped below $41,000. On the other hand, Binance data shows a consistent long bias. Overall, the rise in Bitfinex BTC margin longs likely represents arbitrage with minimal market impact. However, the dominance of leverage bullish positions across futures and margin markets indicates that professional traders are confident in Bitcoin’s potential future performance.
It is important to note that this article does not provide investment advice or recommendations. Readers should conduct their own research and assess the risks before making any investment decisions.