Bitcoin Rallies Back Into Range Even As Investors Spot Risks

Key takeaways:

• $2 billion in spot Bitcoin ETF outflows spark downside fears, but this metric is typically backward-looking.
• A sustained discount on stablecoins in China signals broad capital flight from cryptocurrency markets.

Bitcoin (BTC) reclaimed $77,000 on Wednesday as broader risk markets saw modest relief after Brent crude prices retreated below $108. However, large outflows from spot Bitcoin exchange-traded funds (ETFs) have forced traders to reassess the odds of further downside risk, especially amid lingering fears of a global economic downturn.

Russell 2000 Index futures (left) vs Bitcoin/USD (right). Source: TradingView

Bitcoin’s price action closely tracked the US small-cap stock index, hinting that macroeconomic factors are currently driving the move. The Russell 2000 Index excludes the 1,000 largest companies, shielding it from the heavy concentration of tech stocks.

Outflows from US-listed spot Bitcoin ETFs totaled $2 billion in the seven days leading up to Tuesday, sparking fears of a deeper price correction below $75,000.

US-listed spot Bitcoin ETF daily net flows, USD. Source: SoSoValue

Traders are now turning their attention to the artificial intelligence sector, with Nvidia (NVDA US) scheduled to drop its quarterly results after the US market close. According to Yahoo Finance, investors fear that competition from AMD (AMD US), Amazon (AMZN US) Google (GOOG US) are closing in.

Stablecoin flows in China reveal weak demand for crypto

Regardless of Wednesday’s Nvidia earnings, stablecoin flows in China reveal a distinct lack of investor appetite for cryptocurrencies.

USD stablecoin premium/discount relative to USD/CNY rate. Source: OKX

Stablecoins traded at a 0.4% discount against the official Chinese yuan-US dollar foreign exchange rate, signaling heightened demand to exit crypto markets. Under neutral conditions, the metric typically sustains a 0.3% to 0.8% premium due to strict Chinese capital controls and the regulatory risks faced during arbitrage trades.

Part of this market-wide risk aversion can be pinned to stubborn oil prices and surging US Treasury yields. Selling pressure on government bonds indicates growing concern over the Federal Reserve’s ability to head off an economic recession without triggering major currency dilution. 

Related: Bitcoin lost its hold on $80K, but three events may send it back sooner than markets expect

Elevated energy costs are driving resilient inflationary pressures, ultimately limiting the central bank’s ability to deploy expansionary monetary measures.

Demand for downside Bitcoin price protection signal lack of confidence

Strength in tech stocks masks broader economic risks. Meta (META US) announced a 10% global workforce reduction, while Cloudflare (NET US) is eliminating 20% of its staff. On Wednesday, Intuit’s (INTU US) CEO confirmed the company is laying off 17% of its employees.

Bitcoin options put-to-call volume ratio at Deribit. Source: Laevitas

The volume of Bitcoin put (sell) options traded on Deribit outpaced equivalent call (buy) instruments by 42% on Tuesday as traders sought downside protection. This metric has completely retraced from the previous week’s 56% call option advantage, seen when Bitcoin flirted with $82,000. In essence, traders are reacting to recent price movements rather than anticipating them.

Macroeconomic trends and high-stakes AI earnings forecasts continue to dominate the news flow, making it difficult for Bitcoin to regain sustained bullish momentum. If Nvidia’s results fail to meet investor expectations, Bitcoin could retest the $75,000 level. Still, the mere $2 billion spot Bitcoin ETF outflows are backward-looking and unlikely to indicate structural bearish expectations.