QCP Capital highlights concerns over funding rates but points out the beneficial effects of spot ETFs on Bitcoin’s future.
The current surge is putting to test the market’s predictions about the role of spot Bitcoin ETF inflows, previously thought to drive the primary cryptocurrency to new all-time highs by March’s end.
With Bitcoin’s price surpassing $59,000 on Wednesday, reflecting over a 5% increase, there’s a growing belief that it could reach new heights sooner than expected.
Concerns Over Funding Rates versus the Benefits of Spot ETFs
This rally is predominantly fueled by demand, as evidenced by spot ETF transactions exceeding $3.2 billion and net inflows hitting $520 million. The quick rise in price has led to the liquidation of short positions and a speculative surge, pushing funding rates on native exchanges and even long-term futures to more than 16% above the spot rate.
QCP Capital’s recent report indicates an unexpectedly mild reaction in the options market initially. Investors with long call positions were seen securing profits, with a notable interest in downside protection. Consequently, risk reversals (the disparity between call and put implied volatility) stayed around 3%, peculiar considering the significant spot price movement.
As the spot price climbed, there was a spike in volatility demand, although such increases were quickly capitalized on. Despite the notable price changes, the primary upward direction has kept realized volatility around 40%. The trading firm views the substantial 60k strike as a likely target for the March expiration.
Looking forward, QCP Capital anticipates that the excitement could be moderated by the unsustainable funding rates, possibly leading to a reduction in leverage and a retracement to the $50,000 mark.
Nevertheless, the consistent influx of significant spot ETF investments might support the upward trend, particularly with the upcoming Bitcoin halving event.
Renewed Interest in Bitcoin from Speculators and Traders
Bitcoin’s price rally has sparked renewed interest among traders and speculators, as Glassnode reports. Different Bitcoin investor groups, including institutional and short-term holders, are showing an increased willingness to take risks.
According to the on-chain analytics firm, there’s a surge in trading and speculative activity, driven by an almost record-breaking $5.57 billion in daily exchange volume, largely attributed to short-term investors.