Bitcoin (BTC) experienced a significant surge on May 21, rising 8.5% in 24 hours to reach $71,926. The move left Bitcoin 2.5% behind its all-time high. Moreover, BTC derivatives are showing favorable conditions to hit all-time highs in the coming weeks.
The 4% daily rise in BTC price appears to have been fueled by growing optimism about the probability of approval of a U.S. spot Ethereum exchange-traded fund (ETF) and the general market trend seeking inflation protection. This trend pushed gold and the S&P 500 index to new all-time highs on May 20th.
Many traders are wondering whether the recent Bitcoin price surge was caused by the excessive use of leveraged long positions and what this means for the spot Ethereum (ETH) ETF.
After the U.S. Senate overruled the deal, regulators’ positions changed.
Bloomberg ETF senior analyst Eric Balchunas raised the probability of approval of the Ethereum spot ETF from 25% to 75% on May 20 due to political pressure. These adjustments follow the U.S. Senate’s May 16 resolution that overturned the SEC’s Bulletin 121, which imposed strict capital requirements on banks holding customer digital assets.
Ahead of the Senate vote, President Biden said he may use executive power to veto a resolution that would overturn the SEC’s policies.
But the Senate’s decision favoring cryptocurrency adoption has prompted a strategic reassessment from the White House, said Perianne Boring, founder and CEO of the blockchain trade association Digital Chamber of Commerce.
SEC Chairman Gary Gensler has previously been quite reluctant to classify Ethereum as a non-security or hint at the possibility of approving a spot ETF.
However, the situation changed dramatically on May 20th when the SEC reportedly requested an update on the filing of a spot Ethereum ETF from exchanges such as the NYSE and Nasdaq.
Despite potential competition from Ethereum, the introduction of spot ETFs is likely to benefit the cryptocurrency sector broadly, creating a more conducive environment for investment.
A decline in anti-crypto regulatory stances in the U.S. could encourage more investment managers, including pension funds, to adopt a more favorable view of the sector. Historically, regulatory uncertainty targeting mining operations or privacy-focused intermediaries has had a negative impact on the price of Bitcoin.
Bitcoin derivatives are showing some strength.
The rise in Bitcoin value on May 21 also increased demand for BTC purchase positions through monthly futures. Under normal market conditions, these derivatives carry a premium of 5-10% over the spot price to compensate for the extended settlement period.
Data shows BTC futures premiums rose to 14%, the highest in five weeks. This represents moderately bullish sentiment, in sharp contrast to the situation on April 1, when futures premiums reached 25% (a level usually indicative of extreme market optimism).
Researching the options market is insightful in gaining a deeper understanding of the dynamics at play. The 25% delta skew helps measure the impact of leverage on recent price trends. Markets excited about rising prices typically see a -7% skew as put options become cheaper.
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The current -8% skew in the Bitcoin options market reflects healthy market sentiment. Especially considering that the BTC price increased 23% in 19 days while the options market remained relatively stable.
Bitcoin derivatives market data suggests that there is still room for strategic leverage among Bitcoin buyers without fear of excessive optimism that could lead to significant liquidations in the event of an unexpected price drop. This provides a promising outlook for the BTC price to rise further in the coming weeks, with the potential to hit a new all-time high above $74,000.
According to Game of Trades, a prominent cryptocurrency analyst, bullish momentum could push Bitcoin up to $80,000, given “key moving averages” and “channel support.”
This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.