July 5, 2022
Crypto

Case for Bitcoin Bottom Near $40K Is Weak as Institutions Stay Away

  • February 4, 2022
  • 3 min read
Case for Bitcoin Bottom Near $40K Is Weak as Institutions Stay Away

Laurent Kssis, a crypto exchange-traded fund (ETF) expert and director of CEC Capital, said there are few signs of renewed interest from institutional investors, so a big price bounce soon looks unlikely. “A good barometer is always the asset under management and inflows into crypto exchange-traded products and ETFs. So far we have recovered only $1 billion of inflows versus $4 billion that has left these products alone in January,” Kssis told CoinDesk in a Telegram chat.

Inflows into the ProShares Bitcoin Strategy ETF listed on the New York Stock Exchange (BITO) have slowed. “BITO now holds less than 5,000 CME futures contracts for the first time since November, and its AUM has reached its lowest level since Oct. 19, signaling dwindling interest for BTC exposure through futures-based ETFs,” Arcane Research said in last week’s research note, referring to assets under management.

“Long vega and long gamma [buying call or put options or both] are good solutions with some costs, for implied volatility is too low for the sell side, which means an improper risk-reward ratio,” Ardern said in a Telegram chat. Being long vega means holding options positions that will benefit from a rise in volatility.

Seasoned traders typically buy both call and put options at the same time when the implied volatility is cheap and sell options when the metric is too high. Over the past four weeks, the one-month implied volatility has crashed from an annualized 84% to 59%, according to data source Skew. As of writing, the metric hovered well below its lifetime average of 76%, looking cheap by historical standards.

CEC Capital’s Kssis foresees a retest of $40,000 should the cryptocurrency fail to establish a foothold above $43,000 this week and favors protective strategies to insure against a possible deeper decline. Traders typically buy put options or sell futures as a hedge against a long position in the spot market.

Put-call skews, which measure the spread between prices of puts, or bearish bets, and calls, bullish bets, were trading little changed at press time, implying a neutral bias. One-month futures listed on the Chicago Mercantile Exchange (CME) barely drew a premium to the spot price while those on other exchanges were trading at a premium of less than 5% annualized, a far cry from the double-digit figures observed in October and November. That’s perhaps the result of traders selling futures to hedge their exposure.

According to Pankaj Balani, CEO of Delta Exchange, bitcoin remains vulnerable to a more profound drop due to the lack of buying demand. “We are not seeing any bottom fishing at these levels, and the interest to own bitcoin risk around $40,000 remains low,” Balani told CoinDesk in a WhatsApp chat. “We could retest $40,000 and should that break; we can see a fresh round of selling come through.”

This content was originally published here.

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Scott Larsen