Bitcoin's 4% Rebound Not Enough to Halt Rush for Insurance Against Slump

Bitcoin may be up more than 4% Friday, but the options market for the largest exchange traded fund tied to the cryptocurrency foretells a story of large speculators and institutional investors still holding on to insurance from a potential continued slump. 

The biggest open interest in $iShares Bitcoin Trust(IBIT)$  options are in put options that could pay off should the price fall below $35. The last time the fund traded below that level was on Sept. 18, 2024, when Bitcoin was still at $60,232.24. It was at $68,937 at 3:12 p.m. Friday in New York.

That $60,000 level is closely being watched in the cryptocurrency market, with some indicators signaling a fresh bout of selling could ensue, should Bitcoin fall below that level, according to a Bloomberg report. The biggest concentration in Bitcoin's options are in contracts that could pay off should the token fall below that level, the report said, citing data from Deribit.

IBIT has tumbled 45% from its peak in October, tracking the decline in Bitcoin, as investors pulled money from the ETF, cashing in their gains from the asset's climb to a record. Appetite for riskier assets including crypto waned amid a tech selloff, as money moved to equities that have a solid history of delivering strong dividends.

"Bitcoin wants to be gold, but the market trades it like high-beta tech," Bloomberg Intelligence ETF analysts James Seyffart and Sharoon Francis, wrote in a note Wednesday. "As correlations, volumes and flows align with software stocks rather than bullion, the 'digital gold' narrative continues to crack under real-world price action."

More than $157 million was withdrawn from iShares Bitcoin Thursday, taking this month’s net withdrawals to $340 million so far. Total assets shrank to about $50 billion from a peak of $99.4 billion in October as the Bitcoin slump was aggravated by the outflows. 

"ETF flows, volatility and drawdowns all point to the same conclusion: whatever Bitcoin may be by design, it trades like a risk asset in practice – for now," the Bloomberg analysts said. 

Exchanges and ETFs including IBIT, $Fidelity Wise Origin Bitcoin Fund (FBTC.US)$, $Grayscale Bitcoin Trust (GBTC.US)$, $Grayscale Bitcoin Mini Trust (BTC.US)$ and $ARK 21Shares Bitcoin ETF (ARKB.US)$ hold a combined 1.61 million Bitcoins valued at $111.13 billion, according to BitcoinTreasuries.net. 

That's the biggest holding, trumping the 1.13 million Bitcoins owned by public companies, and dwarfing the 646,681 tokens held by government entities. The huge ownership by ETFs make Bitcoin susceptible to outflows from funds by institutional investors. 

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