Bitcoin Options Traders Remain Cautious Despite 23% Gains

Bitcoin (BTC) saw a 23% increase in value in the five-day period ending on February 28, but traders in BTC options remain hesitant to take a bullish stance. This hesitation can be attributed in part to the fact that the last time Bitcoin experienced a 5% weekly loss was over five weeks ago, leading to a demand for protection against potential downside risks.

Investors wary of potential decrease in spot Bitcoin ETF inflow and U.S. recession

Concerns have arisen among traders regarding a potential decrease in heavy inflow into spot Bitcoin exchange-traded funds (ETFs), which could lead to a price correction. This suggests that these traders may not have confidence in the current bull market or see no need for leverage in the face of macroeconomic uncertainty.

On February 28th, U.S. Bitcoin ETFs saw a net inflow of $673 million, bringing the total net deposits since their launch on January 11th to $7.4 billion. Bloomberg’s senior ETF analyst, James Seyffart, reported this information, noting that only 150 ETFs have ever exceeded $10 billion in assets under management. Notably, BlackRock’s iShares Bitcoin ETF already has over $9 billion in assets, according to Nate Geraci, co-founder of the ETF Institute.

Interpreting this data reveals two distinct perspectives. Some argue that these inflows may not be sustainable in the long term, either due to decreasing demand as Bitcoin’s price rises or because there is a limit to the risk appetite for cryptocurrency exposure. On the other hand, some traders believe in a “snowball effect” where the rising Bitcoin price “further inspires” ETF sales, as suggested by JP Morgan analysts.

Trader beaniemaxi shared their thoughts on X social network, stating that both BlackRock and other spot ETF issuers have incentives to ramp up their sales teams because the “Bitcoin narrative is gaining traction.” This suggests that there is still a significant amount of room for inflows to continue before diminishing. The post also highlights the impact of the Bitcoin halving event, indicating that ETF issuers have a strong selling argument.

However, all of these theories could be disproven if the economy experiences a severe recession or if investors are forced to sell profitable positions to meet increased financing costs elsewhere. Economist David Rosenberg predicts an 85% chance of a U.S. economic recession in 2024 and warns that the stock market would suffer greatly in the event of a contraction.

Bitcoin derivatives show a balanced demand from both bulls and bears

To determine the sentiment of professional traders towards Bitcoin, despite its impressive 45% gains in February, we must analyze the BTC options markets. The 25% delta skew is a useful indicator, revealing whether arbitrage desks and market makers are charging excessive amounts for protection against price movements.

The 25% delta skew for Bitcoin options has remained neutral since February 20th, fluctuating between -7% and +7%. This indicates a balanced pricing between call (buy) and put (sell) options. Interestingly, traders became less optimistic just six days after Bitcoin failed to break the $52,500 mark. This highlights the unease among cryptocurrency investors during accumulation periods.

However, to get a complete picture of the sentiment of top traders, it is important to also consider data from BTC futures markets. This data combines positions across spot, perpetual, and quarterly futures contracts, giving us a comprehensive view of how bullish or bearish these traders are.

The data shows that top traders at Binance and OKX remained relatively neutral until February 26th, at which point they gradually increased their net long positions as Bitcoin’s price surpassed $53,000. This evidence partially contradicts the Bitcoin skew data, but could be attributed to the forced liquidation of short positions, indicating the abrupt end of bearish bets.

In addition, traders at OKX have not even reached their highest monthly level in terms of long-to-short ratios, making it difficult to argue that professional traders are currently bullish. Therefore, if the influx of spot ETFs continues, it is likely that skeptical traders will need to catch up.