Bitcoin bears beware — BTC's rally above $52K is much healthier than before

Bitcoin ( BTC ) gained 21.2% between Feb. 7 and Feb. 15 as traders attempt to establish support at $52,000. This week’s surge is attributed to increased inflows into spot Bitcoin exchange-traded fund (ETF) instruments and macroeconomic uncertainty. However, Bitcoin derivatives metrics do not align with the excessive optimism seen in the market, indicating that professional traders remain unconvinced about the sustainability of the bullish momentum.

Bitcoin ETF inflow could trump weak macroeconomic data

The $2.4 billion net inflow into spot Bitcoin ETFs in the past 7 days can be partially attributed to initial signs of a slowdown in the U.S. economy, particularly in the consumer sector. U.S. retail sales declined by 0.8% in January compared to the previous month, according to the Census Bureau. Similarly, Japan and the United Kingdom entered technical recessions after experiencing two consecutive quarters of declining gross domestic product (GDP).

Traders are questioning whether institutional demand for Bitcoin will persist, considering that the latest economic data is unfavorable for risk-on markets. In times of uncertainty, investors often seek protection in fixed-income assets. To gauge the comfort of whales and arbitrage desks with Bitcoin's $52,000 support, one should analyze BTC derivatives markets , starting with the perpetual contract funding rate.

A positive funding rate indicates an increased demand for leverage among long (buy) positions, while a negative rate signals the need for higher leverage being used by shorts (sell).

The funding rate for Bitcoin's perpetual contracts has remained relatively stable over the past week at 0.25% per 7 days, indicating balanced demand and a neutral market. In contrast, in late 2023, the metric stood at 1% per 7 days, signaling excessive optimism. Interestingly, Bitcoin's price at year-end remained essentially flat compared to the prior two weeks at $42,500.

Bitcoin pro traders are currently not comfortable using leverage

Whales and market makers typically prefer monthly contracts due to the absence of a flexible funding rate. This absence causes these instruments to trade 5%–10% higher relative to regular spot markets to justify the longer settlement period. Therefore, to determine the positioning of professional traders, one should analyze the Bitcoin futures premium, also known as the basis rate.

Data revealed that traders turned bullish after Bitcoin's price surpassed $48,000 on Feb. 11, with the basis rate rising above 10%. However, this movement is not comparable to the premium observed at the beginning of 2024. This suggests that this time around, no excessive leverage is employed to support the markets, indicating a healthy indicator.

One should scrutinize the balance between call (buy) and put (sell) options to assess whether traders were surprised by Bitcoin's bullish momentum. An increasing demand for put options usually indicates traders concentrating on neutral-to-bearish price strategies.

Related: Bitcoin ETFs account for about 75% of new investments — CryptoQuant

Bitcoin options activity has remained relatively stable in the past two weeks, with the put-to-call options volume averaging 0.60. This implies that the demand for put (sell) options was 40% lower. In addition to being bullish in absolute terms, data indicates that there has been no increase in demand for hedging against a market downturn.

All Bitcoin derivatives indicators point to moderate bullishness, with no signs of FOMO or the typical use of high leverage when traders become reckless. Furthermore, bears have little incentive to suppress Bitcoin's price, given the consistent inflow into spot Bitcoin ETFs, paving the way for potential gains above $52,000.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.