Bitcoin experienced a massive surge, rising 8.5% in 24 hours to reach $71,926 on May 21. The move puts Bitcoin just 2.5% below its all-time high. Additionally, BTC derivatives show favorable conditions for a new all-time high in the coming weeks.
BTC’s 4% daily price increase appears to be driven by growing optimism about the odds of approval of a U.S. spot Ethereum exchange-traded fund (ETF), as well as a general market trend of seeking inflation protection, a trend that also pushed gold and the S&P 500 to record highs on May 20.
Many traders are wondering if the recent surge in Bitcoin’s price is driven by over-leveraged long positions, and what the impact of spot Ether ETFs is.
Regulators' stance shifts after US Senate rejection
On May 20, Bloomberg ETF senior analyst Eric Balchunas raised the odds of Ethereum spot ETF approval from 25% to 75%, influenced by political pressure. Previously, the U.S. Senate passed a key resolution on May 16, overturning the U.S. Securities and Exchange Commission (SEC) Notice 121, which imposed strict capital requirements on banks holding customer digital assets.
Before the Senate vote, President Biden had indicated he might use executive power to veto any resolution that would reverse SEC policy.
However, the Senate’s decision to support cryptocurrency adoption has prompted a strategic reassessment at the White House, said Perianne Boring, founder and CEO of the Chamber of Digital Commerce, a blockchain trade association.
SEC Chairman Gary Gensler has previously expressed considerable reluctance to classify Ethereum as a non-security or to hint at the possibility of approving a spot ETF for it.
But things changed dramatically on May 20, when the U.S. Securities and Exchange Commission (SEC) reportedly asked exchanges such as the New York Stock Exchange (NYSE) and Nasdaq to update their spot Ethereum ETF filings.
Despite potential competition from Ethereum, the launch of its spot ETF could have a broad impact on the cryptocurrency industry, creating a more favorable investment environment.
A weakening of the U.S.’s anti-cryptocurrency regulatory stance could encourage more investment managers, including pension funds, to take a more favorable view of the industry. Historically, regulatory uncertainty, whether targeting mining operations or privacy-centric intermediaries, has had an adverse impact on Bitcoin’s price.
Bitcoin derivatives moderately bullish
The rise in Bitcoin’s value on May 21 also triggered increased demand for long positions in BTC monthly futures. Under typical market conditions, these derivatives trade at a 5% to 10% premium to the spot price to compensate for their extended settlement period.
Data shows that the BTC futures premium has climbed to 14%, the highest level in five weeks. This indicates mild bullish sentiment, in stark contrast to the situation on April 1, when the futures premium reached 25%, a level that usually indicates extreme market optimism.
Studying the options market is insightful to further understand its dynamics. A 25% delta skewness helps measure the impact of leverage on recent price trends. Markets that are excited about rising prices typically see a -7% skewness as put (sell) options become cheaper.
The current -8% bias in the Bitcoin options market reflects healthy market sentiment, especially considering that BTC prices have risen 23% in 19 days while options markets have remained relatively stable.
Bitcoin derivatives market data suggests that Bitcoin buyers still have room for strategic leverage without having to worry about excessive optimism, which could lead to major liquidations during unexpected price drops. This provides a promising outlook for more gains in BTC prices in the coming weeks, with the potential to break new all-time highs above $74,000.
According to popular cryptocurrency analyst Game of Trades, bullish momentum could push Bitcoin to $80,000 given “key moving averages” and “channel support.”
