Bitcoin has recently reached $58,000, sending most of the cryptocurrency market into a state of euphoria. This bullish trend, marked by a demand-driven rally, was driven by substantial spot ETF volumes exceeding $3.2 billion and net inflows of $520 million. However, the question arises: Is this growth sustainable or are we on the verge of a withdrawal at the $50,000 level?
Bitcoin has recently reached $58,000, sending most of the cryptocurrency market into a state of euphoria. This bullish trend, marked by a demand-driven rally, was driven by substantial spot ETF volumes exceeding $3.2 billion and net inflows of $520 million. However, the question arises: Is this growth sustainable or are we on the verge of a withdrawal at the $50,000 level?
The recent rise was driven not only by genuine demand but also by the cascading effect of short liquidations and an increase in speculative buying. The subsequent rise in funding rates on local exchanges and a sharp rally in long-term futures, which were trading at a premium of up to 16% over spot prices, underlined the frenetic pace of the rally.
In the options market, the response to this bull run was initially muted, with notable profit taking among call option holders and increasing demand for downside protection. This activity resulted in risk reversals that were around 3%, a figure that belies the magnitude of the spot market movement.
As the price of Bitcoin continued to grow, demand for volatility increased, although spikes were met with selling pressure, suggesting a market cautious of over-extension. With observed volatility remaining at a level close to 40%, the market considers the $60,000 mark as a potential target for the March expiry.
Looking ahead, the sustainability of this rally is in doubt. Overheated funding rates may signal an impending correction, which could eliminate leveraged positions and send Bitcoin back to the $50,000 support level. Conversely, if the influx into spot ETFs maintains its momentum, we could see the bullish trend persist as the market anticipates the Bitcoin halving event.
Investment strategies in this climate should be approached with caution. Accumulators have proven to be a good choice, as they previously allowed customers to purchase Bitcoin at a 24% discount on the spot rate. Furthermore, the implementation of Unconditional Fixed Convertible Coupons (UFCC) could provide a return on long Bitcoin positions, regardless of price fluctuations.
