Due to the notable success of exchange-traded funds (ETFs) in the United States, the price of bitcoin has increased by 35% in the last 22 days. Amid this bullish momentum, investors and market observers are intensely searching for indicators that can signal the proximity of a (local) high. To navigate these waters, several experts have offered their insights on how to discern potential peaks and the timing of these fundamental shifts in the market.
How to spot the next local bitcoin top
Maartunn, community manager at CryptoQuant, emphasized the volatility that bitcoin is expected to face, attributing it to demand dynamics between ETF spot flows and futures speculation. “Volatility will continue intensely. ETF spot flows create demand for the orange coin. This is approximately ~10k btc per day. But the demand for speculation (futures) is even greater,” said Maartunn via X (formerly Twitter).
It highlighted a significant increase in open interest of $700 million (~14k btc) during the most recent pump, suggesting that futures positions make the price action more susceptible to fluctuations. “In my opinion, futures positions make the price action more fragile. That's why I expect the price to go up and down,” Maartunn added, also pointing out the opportunities this volatility creates for short-term trading.
Volatility will continue strongly
Spot ETF Flows creates demand for the orange coin. This is approximately ~10k btc per day.
But the demand for speculation (futures) is even greater. For example; open interest increased by $700 million (~14k btc) during this period plus… pic.twitter.com/ojVC8cNQqS
— Maartún (@JA_Maartun) February 14, 2024
#1 excess leverage
Echoing cautious optimism, Ari Paul, CIO/founder of BlockTower Capital, acknowledged the strength of the bitcoin market stemming from continued ETF inflows and the evolution of bitcoin infrastructure. However, Paul also warned of increasing speculative leverage, which could lead to a deeper pullback.
“Strength largely comes from continued bitcoin ETF inflows; There is also some fundamental optimism around the development of bitcoin infrastructure and many altcoin roadmaps,” Paul commented. He noted signs of speculative excess, with funding rates progressively rising, indicating increasing risks of a pullback despite the current medium-term bullish trend.
Will Clemente III, asking about the observed excess leverage, noted that the current futures market is not as overleveraged as it was at 2021 highs, suggesting that all-time highs could be within reach.
“Ari, where do you see this excess leverage? The basis (on CME and crypto-native venues) and funding rates don't seem that far-fetched. Obviously some of that has to do with the underlying spot supply, but I think things can get a lot more complicated,” he stated.
To me, the craziest part of this btc rally is that the futures market is not even that overleveraged, not even close to 2021 highs.
All-time highs feel like throwing a rock. pic.twitter.com/uFDmKuy0hO
— Will (@WClementeIII) February 14, 2024
Paul responded by indicating that Deribit's progressive increase in annualized future rates for btc and eth to the mid-double digits could mark local highs, with the potential to reach even higher levels later in the bull cycle:
It's certainly not crazy, it's just going up with Deribit's annualized future rates for btc and eth starting to spend time in the mid-double digits. In fact, we could see them up over 20% or even over 30% at later points in the bull cycle. But, entering a territory that until now has marked local peaks.
#2 Waning Demand for Spot bitcoin ETFs
Adding to the speech, Julio Moreno, Head of Research at CryptoQuant, presented another perspective focusing on the impact of ETF demand on the price of bitcoin. According to the latest CryptoQuant report investigationThe launch of spot bitcoin ETFs in the US has significantly increased demand, with $9.5 billion of new money entering bitcoin markets via ETFs since their inception on January 11.
This influx represents 2% of the total historical investment in bitcoin, and more than 71% of new investments in the last two weeks have come from these spot ETFs. Moreno highlighted: “This is positive for price gains as long as the current pace of bitcoin demand from these ETFs continues, but it may be a risk if demand wanes or if we start to see some outflows from these ETFs.”
At the time of publication, btc was trading at $52,114.
Featured image from iStock, chart from TradingView.com
