Bitcoin (BTC) experienced a 14% price correction, dropping to $59,300 after reaching an all-time high of $69,150 on March 5. The challenge now lies in reclaiming the $64,000 support. According to BTC derivatives data, professional traders maintain a slightly bullish stance despite today’s short-term volatility.
Interestingly, Bitcoin’s correction coincided with a 2.6% retracement in the tech-heavy Nasdaq-100 index futures, which hit an all-time high of 18,377 on March 4. The stock market showed early signs of stress following a consumer research firm’s estimation that Apple iPhone sales in China declined by 24%.
Furthermore, shares of New York Community Bancorp (NYCB) continued to decline after the lender replaced its CEO, citing “material weaknesses” in internal controls. Investors sought refuge in gold as the precious metal gained 4.2% in four days, currently trading near its all-time high.
The fact that Bitcoin reached a new all-time high has attracted media attention, potentially prompting whales to consider shorting—betting against the price—or encouraging holders to reduce their positions in response to the usual FUD from Bitcoin critics.
For instance, the funding rate on Bitcoin perpetual contracts garnered attention when it surpassed 1% per week on Feb. 28. However, this metric has been indicating investors’ optimism for the past couple of months, as pointed out by user @bitcoinmunger on X social network.
Bears be like: “Trust me bro. Funding is positive. We are going to get a massive correction any moment now.”
Meanwhile, funding has looked like this for over a year. #bitcoin https://t.co/i2H0A3StSF pic.twitter.com/U6Lmg3M8VA— Bitcoin Munger (@bitcoinmunger) February 27, 2024
In essence, attributing the sharp Bitcoin price correction merely to the funding rate makes little sense, as the metric can stay above 1% per week for an extended period without necessarily forcing bulls to close their longs. Some traders lack access to traditional funding, while others simply do not care about the fees, given the favorable market conditions.
Moreover, retail traders should not serve as a proxy for overheated markets, as cryptocurrency investors naturally exhibit a bullish trend. In contrast, professional traders tend to favor monthly future contracts to avoid variable funding rate costs. In neutral markets, these instruments trade at a premium of 5% to 10% to account for their extended settlement period.
Data reveals that the BTC futures premium stood at 15% during the entire $5,765 price move on March 5. Essentially, the metric signals that whales and market makers remain bullish despite the correction following the all-time high, suggesting little difference if $62,000 or $64,000 becomes a support. Moreover, the BTC futures premium did not overshoot above 20% even during the all-time high, indicating cautious bullish sentiment among traders.
To exclude externalities that might solely impact futures markets, one should assess the Bitcoin options metrics. The 25% delta skew is a telling indicator when arbitrage desks and market makers excessively charge for upside or downside protection.
As depicted above, the 25% delta skew stands at -7%, placing it at the threshold between neutral and bullish markets. Notably, the last instance of Bitcoin option traders being overly excited was on Feb. 19, when the indicator reached -12%. Therefore, the options market supports the notion that professional traders remain unconvinced about Bitcoin breaking above $70,000 anytime soon.
Traditionally, during times of uncertainty, investors tend to seek refuge in short-term bonds and cash positions. This rationalizes the absence of excessive optimism as Bitcoin attains an all-time high.
However, this time might be different, considering the spot Bitcoin exchange-traded fund (ETF) inflow has captured some capital from gold. This suggests a possibility that BTC’s price could sustain bullish momentum irrespective of how traditional markets perform.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.