Lack of Conviction in Institutional Bitcoin Positions; CPI and Iran Talks May Provide Clarity

Despite a 7% increase in bitcoin's price since Sunday, conviction in the market remains weak, with the recovery stalling near $72,000 ahead of key events such as the US inflation report and US-Iran talks. Institutions are adopting a cautious approach, evident in the options market where they are buying calls to bet on potential gains, while also purchasing puts for downside protection. According to QCP Capital, there is demand for the $45 call expiring in May for BlackRock's spot bitcoin ETF, indicating expectations of a price increase above $40. Similarly, bitcoin options on Deribit have seen flows towards the $80,000 call, but demand for puts persists. The price differential between calls and puts, measured by options skew, remains negative, indicating a bias towards put options. The upcoming US consumer price index is expected to show a significant increase in annualized inflation, led by rising energy prices, which may lead to market volatility. The core figure, excluding food and energy, is estimated to be around 2.7%, and if it exceeds this, it may further support the case for Fed rate increases, potentially impacting risk assets like bitcoin. The meeting between Iranian and US delegates in Pakistan may also impact financial market stability, with a potential end to the war and normalization of oil tanker traffic through the Strait of Hormuz likely to accelerate bitcoin's rally. The ICE BofA US Bond Market Option Volatility Estimate Index, which reflects volatility in US Treasury futures, has shown sharp spikes in the past, indicating rising uncertainty around inflation, interest rates, or macro shocks. The index has dropped back to 74% this month, indicating calm in the bond market, which could be a positive signal for crypto bulls.