Spot Bitcoin ETFs: Stability Amidst Unsustainable Funding Rates

Spot Bitcoin ETFs: Stability Amidst Unsustainable Funding Rates

The current rally in Bitcoin is challenging market expectations regarding the impact of spot Bitcoin ETF inflows, which were previously speculated to drive the leading asset to break all-time highs by the end of March.

With Bitcoin surpassing $59,000 on Wednesday, indicating a gain of over 5%, there are indications that a new peak may materialize sooner than anticipated.

Concerns Over Funding Rates vs. Strength of Spot ETFs

The rally is primarily fueled by demand, as evidenced by spot ETF volumes surpassing $3.2 billion and net inflows totaling $520 million. The rapid price increase has led to short liquidations and sparked speculative buying, causing funding rates to soar on native exchanges and even longer-end futures trading, reaching over 16% above the spot.

According to QCP Capital’s latest analysis, the initial response from the options market was unexpectedly subdued. Traders holding long calls were actively taking profits, and there was also interest in downside gamma. As a result, risk reversals (the difference between call-implied volatility and put-implied volatility) remained around 3%, a phenomenon unusual given the magnitude of the spot price movement.

Despite the significant price movement, which has kept realized volatility close to 40%, the predominantly upward trajectory has led the crypto asset trading firm to see the large 60k strike as a natural target for March expiry.

Looking ahead, QCP Capital acknowledges the possibility of speculative fervor being tempered by unsustainable funding rates, potentially leading to leverage washouts and a pullback to the $50,000 level.

However, the continued influx of large spot ETF inflows offers a counterbalance, likely sustaining the uptrend, especially with the upcoming BTC halving on the horizon.

Speculators and Traders Return to Bitcoin

The surge in Bitcoin’s price is reigniting trader and speculator interest, as noted by Glassnode. Across various investor groups of Bitcoin, including institutional buyers and short-term holders, risk appetite is on the rise.

The on-chain intelligence platform’s data indicates heightened trading and speculation activity, fueled by a near-record $5.57 billion in daily exchange volume, predominantly influenced by short-term holders.

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1 Comment

  1. Hello! Fantastic article! I really enjoyed reading it.

    Looking forward to more from you. Have a great day!

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