Bitcoin's Recent Rally: A Mixed Bag of Market Reactions Amid ETF Anticipation
Summary:
Bitcoin saw a 15.7% spike in price in early December, largely due to the anticipation of a U.S. spot exchange-traded fund approval. However, analysts suggest this surge may not be as straightforward, as Bitcoin experienced multiple rejections during late November. The volatility has made professional traders cautious, with some reducing their leveraged long positions. Despite a rally towards $44,000, some significant players were taken by surprise, indicating a lack of consensus in the market's direction. As Bitcoin's price remains above $42,000, the potential approval of a spot ETF in January could further influence the market.
The digital currency Bitcoin (BTC) reported an impressive 15.7% price jump within the initial six days of December. This upward leap can be attributed mainly to the expectation of a spot exchange-traded fund (ETF) getting the nod of approval in the United States soon. Top-tier Bloomberg ETF analysts assign a 90% probability to the approval by the U.S. Securities and Exchange Commission, predicted to arrive by January 10 at the latest.
However, Bitcoin's recent rally might not be as simple as it appears. Analysts seem to have overlooked multiple denials at the $37,500 and $38,500 marks during the latter part of November. These setbacks have caused professional market players and market makers to reassess the market's robustness, especially in terms of derivatives metrics.
Bitcoin's inherent instability perhaps clarifies the diminished enthusiasm of pro traders. The 7.6% climb to $37,965 of Bitcoin on November 15 fizzled out the very next day. Also, between November 20 and November 21, Bitcoin's price saw a drop of 5.3%, with the $37,500 resistance proving tougher than predicted.
Such pullbacks, customary even in rising markets, clarify why big investors and market makers are shying away from leveraged long positions amidst such market instability. Strikingly, despite a series of positive daily market trends during this period, those using leveraged long positions met forced liquidation, collectively losing a massive $390 million in just five days.
Bitcoin futures on the Chicago Mercantile Exchange (CME) hit a two-year high, suggesting an over-demand for long positions. However, this pattern doesn't fully extend to all exchanges and investor profiles. In some cases, elite traders have minimized their long-to-short leverage ratio to the lowest points noted in the past month. This suggests investors are cashing in their profits and reducing bullish bets beyond $40,000.
By studying perpetual and quarterly futures contracts, we can gain a clearer understanding of whether professional traders are leaning bullish or bearish.
OKX's leading traders, as of December 1, showed a preference for long positions with a strong 3.8 ratio. However, as prices surged past $40,000, those long positions were liquidated. Currently, the ratio significantly inclines towards shorts by 38%, reflecting the lowest point in over a month. This shift implies some major players have withdrawn from the ongoing rally.
Nevertheless, this perception is not unanimous. Binance's leading traders have taken the opposite direction. On December 1, long positions dominated by 16%, which has since ballooned to a bullish-leaning 29% share. However, the lack of leveraged long positions among top traders is a positive sign, suggesting the rally is being led more by spot market accumulation.
Options data indicates that not all big players are investing in the rally. A useful litmus test is the balance between call (buy) and put (sell) options. Typically, a larger demand for put options shows traders prioritizing neutral-to-bearish strategies.
Data from the Bitcoin options at OKX shows a growing demand for puts compared to calls, indicating some big players and market makers might have been taken by surprise by the price surge. But traders were not betting on a price drop as call options outweighed volumetrically. An over-demand for put (sell) options would have tipped the balance above 1.0.
Bitcoin's rally towards $44,000 seems solid, devoid of excessive leverage. Yet, some prominent investors were caught off guard, diminishing their leveraged longs and showing a growing demand for put options simultaneously. As Bitcoin's price stays above $42,000, looking forward to a potential spot ETF approval in early January, incentives for bulls to squeeze those whales who opted out of the recent rally are strengthening.
Please note that the content provided in this article is for informational purposes only and does not constitute financial or investment advice. The author's views and opinions expressed herein are solely their own and do not necessarily agree with or reflect the views and opinions of Cointelegraph.
Published At
12/7/2023 11:45:53 PM
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