Bitcoin Rebounds Despite Resistance: Analyzing Market Indicators
Summary:
Bitcoin faced a stronger-than-expected resistance at $52,500, leading to a drop below $51,000 on February 23. Analysts suggest potential reasons for a correction, ranging from Relative Strength Index divergences to history of low bullish momentum. However, if Bitcoin ETF inflow continues, the market may not falter. Despite variations in funding rates indicating decreased interest for leverage from buyers, other indicators such as China's demand for stablecoins suggest a consistency in retail crypto activity. Lastly, the minor negative futures funding rate should not overly concern bullish investors.
Bitcoin achieved its highest daily close in over two years on February 20, but the anticipated $52,500 resistance resulted in a slight drop under $51,000 on February 23. Temporary elevated short position demand on Bitcoin futures contracts on the 22nd of February suggested more bearish movement might come. Despite a 33.5% increase in 2024, analysts theorize that the $1 trillion market cap at $50,930 might mark a temporary peak. This level, while noteworthy for its simplicity, has been spotlighted by popular media perhaps causing investor apprehension.
Analysts have proposed multiple reasons for a possible Bitcoin correction, including Relative Strength Index divergences, disconnect from Bitcoin-associated shares, historical low bullish momentum 60 days before the halving, to around 2.5% of the supply purchased at the $51,500 level. However, these are only relevant if the Bitcoin ETF inflow continues. On February 22, U.S. Bitcoin ETFs' net inflow was $251 million, nullifying the previous day's $36 million outflow.
Projecting Bitcoin ETF demand is tough, so importance must be given to trading metrics to gauge traders' sentiment post unsuccessfully maintaining rates above $52,500. Perpetual contracts, or inverse swaps, have a rate adjusted every eight hours. A negative rate implies a preference for higher leverage by sellers.
February 22 witnessed Bitcoin's 8-hour funding rate slightly dip into the negative but stood above 0.02% (around 1.3% per month), implying long-buyers' decreased demand for leverage. Such fluctuations aren't unusual as market makers lock profits via rate arbitrage, exploiting specific snapshot moments.
To verify the lack of long leverage demand, it's necessary to cross-check with other indicators such as stablecoin demand in China, an essential determinant of retail crypto market activity.
The USD Coin (USDC) stablecoin has consistently held a hefty premium over the official yuan rate in China since February 12, peaking at 3.5%. This indicates a persistent inflow of retail money to cryptocurrencies. However, there's been no surge above 0.03% (approximately 1.9% per month) in Bitcoin's 8-hour funding rate since January 2. This means retail traders missed the full 30% rise from $40,000 to $52,200 in the 30 days up to February 20.
Google's search trends for 'buy Bitcoin' confirm this decreased interest from retail traders despite price increases. Oddly enough, this information suggests that new investors could still be drawn in by FOMO.
Peak interest in the past five years was the week ending January 9, 2021, after Bitcoin's price had risen about 150% in two months. This emphasizes that a slight drop in Bitcoin's futures funding rate does not necessarily signal bearish sentiment or disinterest from retail traders. In conclusion, the minor negative funding rate for Bitcoin futures shouldn’t overly worry bullish investors.
Published At
2/24/2024 12:15:00 AM
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