Bitcoin Rallies Higher Even As Derivatives Lack Conviction

The key takeaways

• While Bitcoin’s onchain and derivatives activity shows a lack in participation by traders, the record ETF spot flows point to a strong demand from institutions.
• As sellers must buy back Bitcoin if it rises, the absence of leveraged positions may even fuel further gains.

Bitcoin (BTC), which has been trading at $81,000 since over three months, gained over 7% in the last week. Bitcoin derivatives aren’t generating much optimism among investors, despite their strong performance. 

Bitcoin derivatives don’t reflect investors’ happiness over $81,000

The macro-economic data and several metrics onchain point towards a softening of demand.

Bitcoin futures 2-month basis rate. Source: Laevitas

Bitcoin monthly contracts traded on Tuesday at an annualized premium of just 1% relative to spot prices, well below the neutral level. Sellers typically demand between 4% and 8% to cover the costs of capital. This caution took root in January at a time when Bitcoin’s price was $90,000. It explains the lack of interest today.

In order to determine if the problem is only with futures contracts, it’s important to assess the balance of demand between call and put options. In neutral market conditions, the instruments are traded within a range of -6 to +6 percent relative premiums. The delta skew is higher when professional traders are concerned about downside risk.

Bitcoin 30-day options delta skew (put-call) at Deribit. Source: Laevitas

On Tuesday, the Bitcoin delta skew edged closer to a neutral 6% threshold. However, it was still slightly negative. Market makers and Whales don’t seem too concerned with an imminent crash. But bulls are clearly losing their conviction. Brent crude oil is hovering around $110 and persistent inflation worries are impacting traders’ economic expectations.

US 5-year inflation expectation vs. Euro 10-year government bond yields. TradingView

According to Federal Reserve Bank of Cleveland data, US inflation expectations have reached a high of 2,5% in 10 years. Investors are also demanding higher yields for Eurozone government bond holdings. The Nasdaq 100 Index, which is heavily weighted towards technology, surged on Tuesday to a new high, signalling a riskier environment.

Declining Bitcoin onchain activity faces heavy spot ETF accumulation

Bitcoin has benefited from the increased appetite for risk, but weak metrics onchain suggest a decline in retail demand.

Bitcoin onchain volume daily (USD) and number of transactions. Source: Glassnode / Cointelegraph

The daily network transfer volume is down 54% compared to three months earlier, falling to $4.1 Billion. The number of transactions is also nearing the lowest point in more than five years. Bitcoin’s pricing isn’t solely determined by onchain activity. However, this metric can serve as an indication of general interest and adoption.

You can also find out more about the following: temporary pause in Strategy’s The accumulation of (MSTR US), ahead of the release its earnings, may have caused some fear. Michael Saylor led the company to maintain an aggressive pace of acquisitions over the last four weeks. Strategie is expected to post a loss for the quarter due to its Bitcoin-based mark-to-market accounting.

Related: Bitcoin turns risk on as stocks hit new highs and miner profits rise: Is $85K BTC next?

Bitcoin derivatives have been negatively affected by macroeconomic weakening and a decline in onchain activity, but not the $1.16 billion in net inflows Between Friday and Monday, there was a significant increase in demand from institutions for Bitcoin-based exchange-traded funds (ETFs), listed on the US stock exchange.

The lack of demand in leveraged bullish Bitcoin derivatives could ultimately serve as a catalyzer for further gains. Shorts (sellers), as prices rise, may have to sell their positions, resulting in additional momentum.

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