Bitcoin (BTC) has once again approached its all-time high after significant gains over the past two days, sparking speculation that it could reach this milestone sooner than initially expected. Analysts had predicted just two weeks ago that significant inflows into spot ETFs could push BTC to new highs by the end of March, but expectations for a new record have increased as the largest cryptocurrency gained over 5% for two consecutive days, nearing the $58,000 level. Despite Bitcoin‘s strong rally, a serious warning has come from analysts at Singapore-based crypto trading company QCP Capital.
Rally Fueled by Spot ETF Inflows
QCP Capital analysts emphasized in their latest assessment note that the recent rally in Bitcoin’s price is primarily demand-driven, fueled by significant inflows into spot ETFs. Looking at the data, it is seen that the volume of spot ETFs has exceeded $3.2 billion, with net inflows reaching $520 million. According to analysts, this increase in demand has triggered short liquidations and a speculative buying frenzy, leading to sharp increases in exchange funding rates and futures contracts.
Despite significant activity in the spot market, analysts noted that the initial reaction in the options market has been relatively quiet. Accordingly, call option holders are actively profiting, while there is a demand for downside gamma. As a result, risk reversals (call IV – put IV) are unexpectedly hovering around 3% considering the magnitude of the spot movement.
QCP Capital analysts added that while the spot market continues to rise, there is an increased demand for volatility, but spikes in volatility are quickly sold off. The realized volatility is currently near 40%, indicating that the movement is one-directional. Market participants are positioning themselves in anticipation of the $60,000 level as a natural target for options expiring in March.
Correction to $50,000 Level Anticipated
Although QCP Capital analysts present a positive outlook on Bitcoin’s price trajectory, they also issued a warning of a potential downturn. According to them, speculative exuberance could be curbed by unsustainable funding rates, and potential leverage liquidations could lead to a pullback towards the $50,000 level.
In light of these dynamics, analysts also offered some recommendations on how to navigate the current market conditions. The first suggestion is for investors to use Accumulators, which allow purchasing BTC at predetermined levels with an upper barrier, to accumulate at discounted prices. Another suggestion is to use Unconditional Fixed Coupon Convertibles (UFCC), which offer a fixed coupon return on a fundamental long Bitcoin position and provide protection against downside risk.
For example, a 12-week UFCC can offer a weekly 10% BTC return, with a specified strike price and protection level. If the price of BTC remains above the protection level at maturity, the underlying BTC is converted to US dollars at the strike price. Meanwhile, investors receive a weekly coupon in BTC.
