Bitcoin Rises amid Investor Caution: ETF Concerns and Potential U.S Recession Attached
Summary:
Bitcoin posts a 23% gain over five days ending Feb. 28, yet options traders display caution due to potential downside risks. Concerns over slowing inflows into Bitcoin ETFs and a potential U.S. recession cause tension. Despite the increased inflows into ETFs, culminating in $7.4 billion since their establishment, investors worry this might not be sustainable. The options market shows bullish and bearish demand is balanced, and futures market data suggest top traders gradually increased their net long positions as Bitcoin’s price surpassed $53,000.
Between Feb 23 and Feb 28, the value of Bitcoin (BTC) surged by 23%, though options traders have been hesitant to display optimism. This is likely because Bitcoin's last weekly drop of 5% was over five weeks ago, causing some to want safety nets against further losses. Investors worry about declines in Bitcoin ETF inflows and a potential U.S. economic downturn.
Concerns are rising about a potential reduction in the high inflows to Bitcoin exchange-traded funds (ETFs), which could lead to a price correction. It seems that these investors are either unconvinced by the ongoing uptrend or believe there's no justification for leveraging amid macroeconomic uncertainties.
On Feb 28 alone, U.S. Bitcoin ETFs recorded net inflows of $673 million, leading to total net deposits of $7.4 billion since their introduction on Jan 11. James Seyffart, Bloomberg's lead ETF analyst, reported these figures, pointing out that only 150 ETFs have ever exceeded $10 billion in assets under management. Notably, BlackRock's iShares Bitcoin ETF already holds over $9 billion in assets, as per Nate Geraci, co-founder of the ETF Institute.
These statistics can be analyzed from two different angles. Some argue that these inflows may not continue indefinitely, possibly due to declining demand as Bitcoin’s price increases or because there's a cap on appetite for cryptocurrency risk. Alternatively, those with a bullish mindset believe that the rising Bitcoin price will further boost ETF sales in a “snowball effect”, as JP Morgan analysts have proposed.
On an X social network, trader beaniemaxi shared their perspective, suggesting that BlackRock and other spot ETF providers have a motive to mobilize their sales teams since the "Bitcoin narrative is gaining traction." This suggests that we still have a long way to go before inflows start to shrink. The post also highlighted the upcoming Bitcoin halving, presenting a persuasive selling point for ETF issuers.
However, if a severe economic recession occurs or investors need to sell off profitable positions to cope with increased financing burden elsewhere, these theories could be invalidated. Economist David Rosenberg forecasts an 85% chance of a U.S. economic recession in 2024. He warns that the stock market is likely to "struggle significantly" if an economic downturn happens.
To discern professional traders' unease with Bitcoin, despite the impressive 45% increase in February, the BTC options markets need to be scrutinized. The 25% delta skew is a useful metric, showing when arbitrage desks and market makers are overcharging for risk coverage.
Since Feb 20, the Bitcoin options 25% delta skew has been neutral, vacillating between -7% and +7%. This implies parity between call (buy) and put (sell) options pricing. Intriguingly, optimism started to wane just six days after Bitcoin was unable to break the $52,500 barrier. This highlights crypto investors' nervousness during accumulation stages.
While the necessity of comparing BTC futures markets data to estimate the stance of top traders exists, irrespective of whether downside protection is priced lower compared to upside potential. To get an overall picture of how bullish or bearish these traders are, this metric consolidates positions across spot, perpetual, and quarterly futures contracts.
The available information suggests that top traders at Binance and OKX maintained a neutral position until Feb 26, at which point they slowly increased their net long positions as Bitcoin’s price surpassed $53,000. This observation somewhat contradicts the Bitcoin skew data but could be due to forced liquidation of short positions, which forced an end to bearish bets. Moreover, traders at OKX haven’t yet reached their highest level of the month in long-to-short ratios, making it difficult to convincingly argue that professional traders are currently bullish. Consequently, if the influx into spot ETFs continues, hesitant traders may need to scale up.
This article is only meant for general informational purposes and should not be viewed as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and may not accurately reflect or represent the views and opinions of Cointelegraph.
Published At
2/29/2024 10:25:00 PM
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