Bitcoin Traders Surprised as BTC Price Rebounds 11% in Just 8 Days

The recent surge in Bitcoin (BTC) price has caught many investors off guard, including BitMEX co-founder Arthur Hayes. Despite concerns about inflation and geopolitical instability, the cryptocurrency saw an 11% increase in just eight days after bouncing back from $38,500-support on Jan. 23.

Hayes had predicted that these factors would lead to a decrease in risk assets, including Bitcoin. However, the market surprised him and many others with the unexpected rise to $43,000 on Jan. 30. Prior to this, traders were anticipating a spike in volatility that would drive the price down.

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Grayscale ETF and Mt. Gox concerns have had a significant impact on the price of BTC

Despite falling below the $43,000 support on January 31st, the price of Bitcoin has remained relatively stable for the past 30 days. This suggests that whatever caused the initial negative impact has since been resolved.

Some analysts believe that the fear, uncertainty, and doubt surrounding the Grayscale spot Bitcoin Trust exchange-traded fund (ETF) outflow and the potential sale of coins from the defunct Mt. Gox exchange may have contributed to the recent price fluctuations.

It should be noted that other ETF issuers, such as Fidelity, BlackRock, and BitWise, have been able to counteract much of the selling pressure from Grayscale’s GBTC.

However, Hayes makes a valid point about the macroeconomic factors at play, as recent data on inflation and growth in the United States have caused investors to no longer anticipate interest rate cuts from the Federal Reserve in March.

Additionally, the recent announcement from the US government about the sale of 2,934 BTC seized from the Silk Road hack, worth around $120 million, added to the overall concerns. However, analysts have noted that this amount is relatively small compared to the daily inflow of funds into newly launched spot Bitcoin ETFs.

Therefore, it is important to consider whether professional traders have benefited from the recent price increase. There is a belief among cryptocurrency investors that market whales and makers have an advantage in predicting major price changes, giving them an edge over retail traders.

While this may hold some truth, it is important to remember that even professional traders are not immune to significant financial losses when the market becomes volatile. Advanced quantitative trading software and strategically positioned servers may play a role in short-term trades, but they do not guarantee success.

Bitcoin derivatives indicate that traders were not prepared for the $43K price level

One way to determine the positioning of whales and arbitrage desks is by comparing the current demand for leverage with the situation on January 23rd.

Whales and market makers typically favor monthly Bitcoin futures contracts due to the absence of a funding rate. This causes these contracts to trade at a 5% to 10% higher price compared to regular spot markets, as this justifies the longer settlement period.

The Bitcoin futures premium, which measures the difference between two-month contracts and the spot price, has remained between 8.5% and 10% for the past nine days. This indicates that these investors were only slightly bullish. However, whenever professional traders become more optimistic, the BTC futures premium tends to soar above 10%.

Traders should also examine options markets to determine if the recent price rally caught them off guard. The 25% delta skew is a significant indicator, as it shows when arbitrage desks and market makers are overcharging for upside or downside protection. In other words, if traders are anticipating a drop in Bitcoin’s price, the skew metric will rise above 7%. Conversely, periods of excitement often have a negative 7% skew.

The BTC options 25% skew shifted from a negative price expectation of 8.5% on January 23rd to a neutral stance of -5% on January 31st. This suggests that the whales and market makers were initially expecting a price crash, but changed their view as the $40,000-support level gained strength.

It is unlikely that professional traders predicted the subsequent downturn to $38,250 and the following 11% price increase in just eight days. In other words, they did not profit from the recent upward movement in price.

Furthermore, as these traders were caught off guard and remain neutral in terms of BTC futures leverage, they may be forced to add long positions (buy) if the rally continues.