Due to the remarkable success of exchange-traded funds (ETFs) in the United States, the Bitcoin price has risen by 35% in the last 22 days. Amidst this bullish momentum, investors and market watchers are keenly looking for indicators that could signal the approach of a (local) top. To navigate these waters, several experts have offered their insights on how to discern potential peaks and the timing of these pivotal market shifts.
How To Spot The Next Bitcoin Local Top
Maartunn, community manager at CryptoQuant, emphasized the volatility that Bitcoin is expected to face, attributing it to the demand dynamics between spot ETF flows and futures speculation. “Volatility will continue in a heavy way. Spot ETF flows create demand for the orange coin. This is about ~10k BTC on a daily basis. But the demand for speculation (futures) is even higher,” Maartunn noted via X (formerly Twitter).
He highlighted a significant increase in Open Interest by $700 million (~14k BTC) during the most recent pump, suggesting that futures positions make the price action more susceptible to fluctuations. “In my opinion, the futures positions makes the price action more fragile. That’s why I expect price to jump back and forth,” Maartunn added, also pointing out the opportunities this volatility creates for short-term trading.
▶️ Volatility will continue on a heavy way
Spot ETF Flows creates demand for the orange coin. This is about ~10k BTC on a daily basis.
But the demand for speculation (futures) is even higher. For example; the Open Interest increased by $700 million (~14k BTC) during this most… pic.twitter.com/ojVC8cNQqS
— Maartunn (@JA_Maartun) February 14, 2024
#1 Excess Leverage
Echoing a cautious optimism, Ari Paul, CIO/Founder of BlockTower Capital, acknowledged the strength in the Bitcoin market stemming from consistent ETF inflows and developments in Bitcoin infrastructure. However, Paul also warned of increasing speculative leverage, which could lead to a deeper retracement.
“Strength has largely come from consistent bitcoin ETF inflows; also some fundamental bullishness around both bitcoin infrastructure development and many altcoin roadmaps,” Paul remarked. He observed signs of speculative excess, with funding rates creeping higher, indicating rising risks of a retracement despite the ongoing medium-term bull trend.
Will Clemente III, inquiring about the observed excess leverage, pointed to the current futures market not being as overleveraged as in peak 2021 levels, suggesting that all-time highs might be within reach.
“Ari, where are you seeing this excess leverage? Basis (on CME & crypto native venues) and funding rates don’t seem that crazy. Obviously some of that has to do with underlying spot bid, but think things can get a lot wonkier,” he stated.
The craziest part of this BTC rally to me is that the futures market isn't even that overleveraged, not even close to peak 2021 levels.
All time highs feel like a stone toss away. pic.twitter.com/uFDmKuy0hO
— Will (@WClementeIII) February 14, 2024
Paul responded by indicating that the creeping higher of Deribit annualized future rates for BTC and ETH into mid-double digits could mark local tops, with the potential to reach even higher levels later in the bull cycle:
Certainly not crazy, just creeping higher with Deribit annualized future rates for BTC and ETH starting to spend time in mid double digits. Indeed, we could see those at 20%+ even 30%+ at later points in the bull cycle. But, heading into territory that so far has marked local tops.
#2 Waning Demand For Spot Bitcoin ETFs
Adding to the discourse, Julio Moreno, Head of Research at CryptoQuant, presented another perspective focusing on the impact of ETF demand on Bitcoin’s price. According to CryptoQuant’s latest research, the launch of spot Bitcoin ETFs in the US has significantly increased demand, with $9.5 billion of new money entering Bitcoin markets through ETFs since their inception on January 11.
This influx represents 2% of the total historical investment in Bitcoin, with over 71% of new investments in the past two weeks coming from these spot ETFs. Moreno highlighted, “This is positive for price gains as long as the current rate of Bitcoin demand from these ETFs continues, but can be a risk if demand eases or if we start to see some outflows from these ETFs.”
At press time, BTC traded at $52,114.
