Bitcoin price fails to grasp $45K, but derivatives markets signal traders’ optimism

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Bitcoin (BTC) price broke above $40,000 for the first time since April 2022, roughly two weeks ago, on Dec. 4. Within less than 48 hours, a rally toward $44,000 occurred, but this resistance level has proven to be stronger than expected. Traders now question if a correction down to $41,000 is the most likely scenario.

Bitcoin/USD price index, 12-hour. Source: TradingView

The last 16 days have seen several rejections at $44,000 and subsequent retests of the $41,000 support. Interestingly, these movements occurred as the chances of approval for a spot Bitcoin exchange-traded fund (ETF) by January increased, according to Bloomberg ETF analysts after multiple issuers amended their filings to comply with the cash redemption model demanded by securities regulators.

BlackRock, among others, updated their S-1 registration statements to exclude non-monetary payments, known as ‘in-kind.’ Essentially, the creation and redemption of ETF shares will happen in cash, rather than allowing participants to pay or be compensated in Bitcoin, although the fund itself will be able to hold the actual cryptocurrency.

Traders question if the spot Bitcoin ETF approval will trigger a price crash

Some traders suggest that the spot ETF listing follows the ‘buy the rumor, sell the news’ pattern. This means that smart money anticipates the launch, causing most gains to occur before the actual regulatory approval.

The post from @BritishHodl on X social network goes one step further, adding that Bitcoin’s price will “see a sudden spike, then a heavy dip on approval.” However, the trader adds that “the real assessment of price should come 3 months” after the ETF approval, and provides a bullish outlook for the long term.

To determine if whales and market makers remain bullish, one should examine the Bitcoin futures premium, also known as the ‘basis rate,’ a preferred instrument among professional traders due to its fixed funding rate. In neutral markets, these contracts should trade at a premium of 5% to 10% to account for their extended settlement period.

Bitcoin 2-month futures annualized premium. Source: Laevitas.ch

The BTC futures premium has remained above the 10% neutral-to-bullish threshold since Dec. 1, indicating a slightly excessive demand for leverage long positions (buying). This data suggests that traders have not changed their stance despite the recent rejections at $44,000, and the latest correction on Dec. 21 was no different.

Regulatory uncertainty could explain the balanced demand between BTC put and call options

Investors should also analyze options markets to gauge whether the recent correction has impacted traders’ optimism. The 25% delta skew is a telling indicator when arbitrage desks and market makers are demanding a premium to offer upside or downside protection.

If traders expect a Bitcoin price drop, the skew metric will rise above 7%, and periods of excitement tend to result in a negative 7% skew.

Bitcoin 30-day options 25% delta skew. Source: Laevitas

The Bitcoin options market tells a slightly different story, as call (buy) and put (sell) options have been trading at similar price levels for the past week. Given that Bitcoin’s price rallied 15.4% in December, one would expect increased demand for downside protection, but that was not the case. Consequently, the data shows moderate confidence among bulls but not enough to justify a premium for call options.

Related: ‘In Argentina, contracts can be settled in Bitcoin’ — foreign minister

Despite investors’ excitement about the potential approval of a spot Bitcoin ETF, regulatory risk remains high, especially for cryptocurrency exchanges. On Dec. 15, the U.S. Securities and Exchange Commission (SEC) denied Coinbase’s petition for rulemaking on cryptocurrency, stating that existing laws are sufficient.

This regulatory uncertainty limits investors’ appetite and, as a result, strengthens the $44,000 resistance level. From a broader perspective, Bitcoin’s 164% year-to-date gains far exceed the stock market’s 23.2% increase, as measured by the S&P 500 index–which triggers some profit-taking movements in the cryptocurrency. But, on the bright side, Bitcoin whales do not appear concerned about the latest rejection, as measured by BTC derivatives metrics, opening room for further gains before the actual spot ETF approval.