Bitcoin and other cryptocurrencies have been experiencing a surge in popularity and value since the U.S. presidential election. This has led to a frenzy of activity in the market, with JPMorgan’s retail sentiment score for BTC and BTC-tied assets reaching a record high last week. The score, which measures the sentiment of retail investors towards cryptocurrencies, especially bitcoin, hit a high of 4 as BTC surpassed the $93,000 mark.
The demand for Bitcoin ETFs was particularly strong following the election results, with the sentiment score for the Bitcoin family soaring to a multi-sigma high. This indicates a substantial and positive deviation from the average, pointing to strong demand in the market. However, this frenzied trading activity can also lead to unpredictable market movements and potential sharp reversals.
In addition to the surge in retail sentiment, the options market tied to MicroStrategy (MSTR) also exhibited a record bullish sentiment. The one-year 25-delta put-call skew for MSTR hit a low of -26.7% on Wednesday, indicating a strong bias for upside bets. While the skew has since recovered slightly to -11.8% on Friday, it still shows a significant preference for call options used to hedge against or profit from price rallies.
Analysts have referred to the skew in MSTR as “beyond extreme upside fear,” suggesting that the market may be overheated and due for a correction. While Bitcoin and other crypto-linked assets may present solid long-term investment opportunities, investors should be cautious of the surging retail sentiment and frenzied trading activity in the market.
As Bitcoin continues to break new highs and retail investors flock to the market, it is essential to remain vigilant and prepared for potential twists and turns in the wild rise of cryptocurrencies. Keeping a close eye on market indicators, such as the retail sentiment score and options market skew, can help investors navigate the volatile landscape of cryptocurrency trading.