Bitcoin's Rebound Sparks Speculation About Potential Recovery

Bitcoin's recent price action has been marked by a rebound from an early-February slide, which pushed the cryptocurrency to $60,000 and produced its most oversold signal on record. This price action helped improve the broader market sentiment as it coincided with a three-day stretch of net inflows into US spot Bitcoin exchange-traded funds (ETFs), their strongest run this month.

The market is showing signs of improved spot demand for the first time since late November, which has led to renewed speculation about a potential recovery to $90,000 in March. However, derivatives positioning suggests that traders are still cautious and not fully convinced of the selloff being over. The options market suggests that traders are still paying up for protection, even as chatter builds around a quick rebound.

CME Group data points to the same caution, with 25-delta implied volatility rising to 75% for calls and 95% for puts, both the highest since 2022, while the 25-delta risk reversal slid to minus 19.34, its lowest level since 2022.

Despite these mixed signals, derivatives positioning shows why the recovery narrative has not vanished. CME said open interest tied to March expirations skewed bullish, with about $660 million in call open interest versus $240 million in put open interest, a 3-to-1 ratio. Derive, a crypto options platform, echoed that read in a February 27 email statement.

The firm stated: 'The data points toward a market attempting to form a base. Volatility compression, improving sentiment metrics and increasingly structured positioning suggest traders are transitioning away from defensive panic toward conditional optimism, preparing for upside participation while remaining protected against another leg lower.'

If Bitcoin is to move beyond a slow recovery, the exchange-traded fund market remains the clearest source of additional demand. Recent inflows into US spot Bitcoin ETFs could play a crucial role in determining the market's direction.