Are Spot Bitcoin ETFs Vital to Sustain Bitcoin's Upward Trend?

Spot Bitcoin ETFs witnessed a significant $888 million net outflow during their first week of trading, raising questions about the sustainability of the recent rally. However, market behavior suggests that Bitcoin's bullish momentum is not solely reliant on spot ETF inflows, as evidenced by its 15% gain despite the outflows. The approval of a $1.2 trillion spending package and the Federal Reserve's forecast of interest rate cuts have emerged as positive catalysts, while Bitcoin derivatives markets remain optimistic with futures premiums and options skew indicating a balanced demand for bullish and bearish strategies.

Are Spot Bitcoin ETFs Essential for Bitcoin's Bullish Momentum?

The inaugural week of spot Bitcoin (BTC) exchange-traded funds (ETFs) witnessed a notable reversal, with a net outflow of $888 million from March 18 to March 22. This stark departure from the previous week's $2.57 billion inflow has cast doubt on the sustainability of Bitcoin's recent surge to $70,000 on March 25.

Institutional Inflows: A Driving Force or a Mere Catalyst?

Some market participants had attributed Bitcoin's record high of $73,755 on March 14 to institutional inflows via spot ETFs. However, the subsequent 9% gain between March 23 and March 25, coupled with the S&P 500's inability to sustain its all-time high, has raised questions about the necessity of such inflows for Bitcoin's bullish momentum.

A Reality Check for Bitcoin's Bull Run?

Analyst venturefoundΞr posits that Bitcoin's recent rally may have been a "FOMO" (fear of missing out) surge driven by ETF investors, resulting in a "trapping" of buyers at the peak before the halving. While the 15% gain from March 20 to March 25 warrants caution, Bitcoin's market behavior suggests a degree of resilience beyond ETF inflows.

Macroeconomic Catalysts: A Tailwind for Bitcoin?

The United States' recent approval of a $1.2 trillion spending package on March 23 is seen by some traders as a positive catalyst for Bitcoin. This optimism stems from the U.S. Federal Reserve's forecast of three interest rate cuts throughout 2024, which could mitigate concerns about rising government debt and potentially bolster risk-on assets like Bitcoin.

A Weakening Dollar: A Boon for Scarce Assets?

The simultaneous rise of scarce assets such as gold, Bitcoin, real estate, and the stock market suggests a weakening U.S. dollar. This devaluation of fiat currencies is prompting investors to seek refuge in alternative assets, regardless of the euro or British pound's performance against the dollar.

Monetary Expansion: A Double-Edged Sword?

Predicting a sustained upward trajectory for Bitcoin based solely on monetary expansion may be premature. However, bears arguing that the U.S. fiscal trajectory will lead to a recession, potentially harming risk-on assets, overlook Bitcoin's impressive 64% year-to-date gain in 2024.

Bitcoin Derivatives: A Gauge of Professional Sentiment

To assess professional traders' sentiment following the disappointing spot ETF inflow data, one can examine BTC monthly futures contracts. In neutral markets, these contracts typically trade at a 5% to 10% premium due to their longer settlement period.

BTC Futures Premium: A Sign of Optimism

Data shows that the annualized BTC futures premium has remained largely unaffected by the net spot ETF outflows. The current 18% premium indicates a willingness among buyers to pay a premium for leveraged long positions, suggesting a positive outlook.

Options Market: A Balanced Approach

Examining the Bitcoin options market is crucial to determine if the March rally to $70,000 has increased demand for strategies to hedge against potential price corrections. The skew metric typically exceeds 7% when traders anticipate a price drop, while periods of enthusiasm often see a skew below 7%.

Neutral Skew: A Balanced Sentiment

Since March 13, the BTC options 25% delta skew has remained in a neutral range, indicating a balanced demand for bullish and bearish options strategies. Notably, there were no signs of panic as Bitcoin tested the $62,000 support on March 20.

Conclusion: A Resilient Bitcoin

The indicators from Bitcoin derivatives markets suggest a strong price resilience despite the recent spot ETF outflows. This supports the likelihood that the $70,000 support level is gaining strength, bolstering the view that Bitcoin's bullish momentum is not solely reliant on spot ETF inflows.

Disclaimer: This article is not intended as investment advice. Readers are encouraged to conduct their own research before making any investment decisions.