Bitcoin’s futures market is showing signs of increased activity, with the three-month futures basis experiencing a notable uptick. This trend suggests that traders are engaging more with derivatives even as Bitcoin continues its sideways movement, oscillating between $62,000 and $71,000 since February 6 and exhibiting no substantial breakout attempts.
Recent observations indicate that retail investors are stepping in, attempting to “buy the dip.” Coinbase CEO Brian Armstrong commented on this resilience among retail users, noting that a significant majority have maintained or increased their balances from December to February. This renewed interest from retail investors signals a rise in speculative behavior as they hope for a breakout rally, despite the inherent risks of entering the market late.
According to Nick Ruck, Director of LVRG Research, the annualized three-month futures basis on major exchanges like Binance, OKX, and Deribit has increased from approximately 1.5% to 4% since February 13. This metric captures the difference between derivative prices and spot prices, with a widening gap indicating a renewed speculative appetite. Furthermore, funding rates have also risen, suggesting that long-position speculators are gaining prominence in the market.
The options market reflects a similar sentiment but with a hint of caution. The 25 Delta skew, a measurement of demand for puts versus calls, has improved since February 13, moving from -10 to -4, signaling a reduction in demand for bearish bets. This could imply a growing bullish sentiment among traders, yet the dynamics remain delicate.
Ruck anticipates a potential leverage-driven rally, fueled by short squeezes, especially if the broader market holds steady. However, he warns that retail investors often enter the market at inopportune times and may face significant losses during unwinds. He suggests that while this setup might indicate a near-term bottom, it is likely to be followed by a tumultuous period of over-leveraged shakeouts.
Ryan Yoon, a senior analyst at Tiger Research, points out that despite the seemingly positive market sentiment, it lacks sufficient trading volume, creating a precarious situation. He emphasizes the risk of a sudden downturn leading to mass liquidation and a complete withdrawal from the market. Yoon characterizes the current phase as critical, where the difference between a healthy recovery and total investor indifference is dangerously slim.
As of the latest updates, Bitcoin has seen a 2.5% decrease over the past 24 hours, with its trading price hovering around $68,600. The futures and options markets indicate a cautious optimism, yet the broader implications of increased retail participation raise concerns about potential volatility in the near future.
