Bitcoin Price Doesn’t Find Its Way, But BTC Fundamentals Inspire Traders Confidence CryptoBlog

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The sudden crash of Bitcoin (BTC) on January 10 sent the price below $40,000 for the first time in 110 days and it was a wake-up call for leveraged traders. $1.9 billion in long (buy) futures contracts were liquidated that week, dragging down traders’ morale.

The crypto “Fear & Greed” index, which ranges from 0 “extreme fear” to 100 “greed,” hit 10 on Jan. 10, its lowest level since the March 2020 crash. The indicator measures sentiment traders using historical volatility, market momentum, volume, Bitcoin dominance, and social media.

As usual, the panic turned out to be a buying opportunity as the total crypto market cap rose 13.5% from a low of $1.85 trillion to $2.1 trillion. in less than three days.

Currently, investors seem to be digesting this week’s economic data which shows that retail sales in the United States in December 2021 were down 1.9% from the previous month.

Investors have reason to worry about stagflation, a scenario where inflation is accelerating despite the lack of economic growth. However, even if this ultimately proves Bitcoin’s digital scarcity to be a positive feature, markets will still take refuge with any asset deemed safe. Thus, the first wave will be potentially damaging for cryptocurrencies.

Top weekly gainers and losers on January 17. Source: Nomics

Bitcoin price has been flat for the past seven days, underperforming the 7% gain in the altcoin market. Part of this unusual move can be explained by decentralized layer 1 application platforms showing positive performance which was driven by Fantom (FTM), Cardano (ADA), Near Protocol (NEAR) and Harmony (ONE ).

Loopring (LRC), an open zkRollup protocol for decentralized exchanges on Ethereum, had the worst performance of the week. DEX volume using the protocol peaked at $30 million per day in early December 2021, but is now close to $6 million. Meanwhile, Dfinity (ICP) and Chainlink (LINK) are adjusting after rallying 40% or more in the first 10 days of 2022.

Tether premium and futures premium held up well

The OKEx Tether (USDT) premium or rebate measures the difference between China-based peer-to-peer (P2P) transactions and the official US dollar. Numbers above 100% indicate excessive demand for cryptocurrency investment. On the other hand, a 5% discount usually indicates strong sales activity.

Peer-to-peer premium OKEx USDT against USD. Source: OKEx

The Tether indicator hit a low of 3% on December 31, which is slightly bearish but not alarming. However, this metric has seen a decent 2% discount over the past week, signaling that there is no panic selling from China-based traders.

To further prove that the crypto market structure has held, traders should analyze the CME Bitcoin futures premium. This metric analyzes the difference between the longer term futures and the current spot price in the regular markets.

Whenever this indicator fades or turns negative, it is an alarming red flag. This situation is also known as a pullback and indicates that bearish sentiment is present.

2-month futures contract premium BTC CME against Bitcoin/USD. Source: Trading View

These fixed-month contracts typically trade at a slight premium, indicating that sellers are asking for more money to hold settlements longer. As a result, futures should trade at a 0.5% to 2% premium in healthy markets, a situation known as contango.

Notice how the indicator turned negative on Dec. 9 as Bitcoin traded below $49,000, but still managed to hold a slightly positive number. This shows that institutional traders are showing a lack of confidence, even though it is not yet a bearish pattern.

Considering that the overall cryptocurrency market cap is down 9.5% so far, the market structure has held up pretty well. The CME futures premium would have turned negative had there been excessive demand from short sellers.

Unless these fundamentals change significantly, there is not yet enough information available to support calls for Bitcoin price below $40,000.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.