Bitcoin Surges Amid Recession Fears: Traders Remain Cautious Despite New Two-Year High
Summary:
Bitcoin's price broke its tight 12-day run, soaring by 12.7% to set a new two-year high of $57,380. Despite this uptick, Bitcoin derivatives indicate experienced traders remain cautious, with some hedging their bets through protective put options. ETFs from Bitcoin exchanges continue to accumulate coins, with BlackRock and Fidelity leading the charge. The looming recession risk, supported by JPMorgan Chase CEO Jamie Dimon's predictions, threatens an optimistic outlook for Bitcoin. An analysis of Bitcoin's monthly futures contracts suggests a moderately optimistic trend, but major market players remain skeptical of the recent rally.
Following 12 days of minimal changes, Bitcoin (BTC) has ended its tight run which saw it fluctuating from $50,430 to $52,970 by soaring by 12.7% within a 24-hour span, hitting its highest point in two years, coming in at $57,380. This sudden upsurge resulted in a substantial $313 million leverage short liquidations. Despite this swift change, Bitcoin's derivatives suggest that experienced traders remain relatively unenthusiastic, with some even investing in protective put options.
Continuing to show impactful rates of growth, ETFs from various Bitcoin exchanges continue to acquire more and more of the cryptocurrency. Over the last three working days, these Bitcoin ETFs secured a total of 18,331 Bitcoins, which are valued at more than $970 million, as noted by @HODL15Capital on the X social network. Leading the pack, BlackRock boasts $7 billion in holdings, followed by Fidelity with $5 billion, effectively counterbalancing the outflow experienced by Grayscale’s GBTC, which has been declining due to its 1.5% fees being considerably higher than its competitors.
The prospect of the United States economy falling into a recession is providing comfort to Bitcoin pessimists, an outlook that JPMorgan Chase CEO Jamie Dimon has voiced at a recent Miami conference last Feb. 26 according to CNBC. He stressed that the market is overly confident about a smooth transition amidst an anticipated start of tapering by the US Federal Reserve (Fed). However, he does not foresee a crisis comparable to what happened in 2008.
Dimon's predictions indicate that the chances of high interest rates set by the Fed are higher than the market's expectations, which may negatively affect the stock markets due to increased refinancing costs for companies, as the interest rates about two years ago were approximately 1.5%. This would mean that investors would be less inclined to leave fixed-income positions, as the current 2-year US Treasury yield is 4.7%, higher than the 3% inflation expectations.
Under these circumstances, Bitcoin may not see a lot of optimism, as the increasing possibility of an economic recession may limit the drive to acquire more. Although Bitcoin's scarcity and lack of correlation with the stock market make it appealing, the looming uncertainty leads investors to take refuge in US Treasuries rather than riskier investments like cryptocurrencies.
The outlook for Bitcoin among professional traders in derivative markets can be deciphered by looking at the BTC's monthly futures contracts. Typically, in neutral markets, these contracts trade at a 5% to 10% premium due to their extended settlement period. However, the data suggests that the annualized BTC futures premium has remained steady, ranging from 13% to 18% this past week, pointing towards a healthy and moderately optimistic trend. It also shows a lack of price surges prompted by leverage, thus reducing the risk of sudden, cascading liquidations.
In order to evaluate if the recent rally has sparked hedging strategies against potential price corrections, it's essential to look at the Bitcoin options markets. Notably, the demand gap between call (buy) and put (sell) options shows only a slight 15% decrease in demand for protective put options compared to call options from Feb. 20 to Feb. 26. This a significant change compared to the previous week which showed a 42% difference, implying much higher confidence in Bitcoin’s performance.
From an optimistic perspective, one could interpret that professional traders were unprepared for the Bitcoin surge beyond the $52,500 resistance level. However, on the other hand, those betting against Bitcoin could be reassured knowing that major players and market makers remain skeptical of the recent rally, based on derivatives metrics. Therefore, the possibility of hitting $60,000 is open, but it will likely surprise many professional Bitcoin traders.
Kindly note, this information is for general knowledge only and does not constitute legal or investment advice. The views expressed are solely the author's and may not represent those of Cointelegraph in any way.
Published At
2/27/2024 10:10:00 PM
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