Bitcoin Derivatives Signal Potential Rally to $73K and Beyond

Bitcoin has seen a remarkable increase, surging by 8.5% within a single day to hit $71,926 on May 21. This latest boost brings Bitcoin within just 2.5% of its all-time record. The favorable conditions in BTC derivatives suggest that breaking new all-time highs could be on the horizon in the coming weeks.

One significant factor behind the 4% daily spike in Bitcoin’s price is the growing optimism about the potential approval of a U.S. spot Ethereum exchange-traded fund (ETF). This positive trend is part of a broader market movement aimed at seeking protection against inflation. This same movement has also driven gold and the S&P 500 to reach new all-time highs as of May 20.

Traders are curious whether this surge in Bitcoin’s price is the result of excessive leveraged long positions. They are also keen to understand the implications of a spot Ether ETF. This uptick in Bitcoin can also be attributed to shifts in the regulatory landscape.

Eric Balchunas, a senior Bloomberg ETF analyst, raised the likelihood of the Ethereum spot ETF approval from 25% to 75% on May 20, swayed by political pressures. This change came after a crucial U.S. Senate resolution on May 16 that overturned the SEC’s stringent Bulletin 121, which had imposed tough capital requirements on banks holding customer digital assets.

Initially, President Biden was poised to use his executive power to veto any legislation that would counter the SEC’s policy. The Senate’s decision supporting cryptocurrency adoption led to a strategic shift at the White House. Perianne Boring, CEO of the Blockchain Trade Association Digital Chamber, highlighted this shift brought about by political maneuvering.

SEC Chair Gary Gensler initially exhibited significant reluctance to classify Ethereum as a non-security or indicate any likelihood of approving its spot ETF. The tide turned on May 20 when the SEC reportedly asked for updates to the spot Ethereum ETF filings from exchanges like NYSE and Nasdaq.

Despite the potential rivalry from Ethereum, the introduction of its spot ETF is expected to benefit the broader cryptocurrency sector. This environment might encourage more traditional investment managers, including pension funds, to view the sector favorably. Historically, regulatory uncertainties have negatively impacted Bitcoin’s price, whether through mining operations or privacy-centric intermediaries.

The recent rise in Bitcoin’s value has also increased the demand for BTC long positions in monthly futures. Under normal circumstances, these futures carry a premium of 5% to 10% over the spot price to account for their extended settlement periods. Current data reveals that the BTC futures premium has risen to 14%, the highest in five weeks, indicating moderate bullish sentiment. This is a stark contrast to April 1, when the premium hit 25%, signaling extreme market optimism.

Examining the options market provides further insight into the trends. The 25% delta skew helps assess the influence of leverage on price movements. A market enthusiastic about rising prices usually sees a -7% skew. Presently, the Bitcoin options market has a -8% skew, indicating healthy market sentiment, particularly as BTC has jumped by 23% in 19 days while the options market has remained stable.

The data from the Bitcoin derivatives market suggests that there is still room for strategic leverage among Bitcoin purchasers without fear of excessive optimism that might lead to significant liquidations during sudden price drops. This bodes well for potential further increases in BTC prices, with the possibility of breaking new all-time highs surpassing $74,000.

According to the crypto analyst Game of Trades, the bullish momentum could propel Bitcoin to as high as $80,000, given key moving averages and channel support. This indicates a highly promising outlook for Bitcoin in the foreseeable future.