2 key Bitcoin price metrics suggest BTC is primed to reclaim $40,000

After Bitcoin’s sudden plunge to $33,000 on January 24, cryptocurrencies experienced volatile trading. The sharp drop of 9% was fully recovered 8 hours after BTC price reached the $36,000 support.

Bitcoin rose to $38,960 on Jan 26 but could not hold the level. It corrected 8.8% within the next 8 hours. Bitcoin gained just 1.6% in seven days, even after taking into account the ups and downs.

Despite the large price swings, overall futures contract liquidations were low. The $570 million worth of futures for longs (buyers), was canceled by shorts (sellers). Data showed that Bitcoin futures accounted for 41% of total liquidations worth $1.25 billion.

BTC’s price recovery could be limited by regulatory winds

The weekly increase in total crypto market capitalization was modest at 1.6%, which is consistent with Bitcoin’s performance.

USD billion total crypto market capitalization Source: TradingView

The Jan. 24 price has been making higher lows, and is currently supporting $1.75 trillion. The total crypto market capitalization saw a healthy 12.5% increase since Jan. 24, despite the fact that the price is 22% lower in 2022.

Investors are digesting this week’s regulatory news. Ted Budd, the United States Congressman, submitted an amendment to remove a provision in the bill that allowed the U.S. Treasury unilaterally to prohibit certain financial transactions without public input.

The America COMPETES Act of 2022, if passed as it stands now, would be a major blow to cryptocurrency, according to Jerry Brito, Coin Center’s executive director.

Investors were adversely affected by the news that the U.S. White House was reportedly planning an executive order regarding crypto, which would require government agencies to conduct risk analyses on cryptocurrency as a potential national security threat.

After last week’s Apple news, Metaverse tokens were decoupled

Although a steady bearish newsflow may have caused cryptocurrency’s recent price action, there were impressive performances by Metaverse tokens.

January 31, 2011: Top Weekly Winners and Losers Source: Nomics

Tim Cook, Apple (AAPL), CEO, stated in an investor call on Jan. 27, that metaverse applications have a lot to offer and that his company is committed to augmented reality development on its devices.

The news was sufficient to propel metaverse-related tokens up to 36% including Flow (SAND), Decentraland, (MANA), Decentraland, (MANA), Enjin Coin(ENJ) and Arweare.

Terra (LUNA), on the other hand was affected after Wonderland Money (TIME), an Avalanche-based reserve money, announced that a pending proposition would decide whether or not the project is closed. The MIM stablecoin fell below 1.00, and some speculate this could have had a knock-on impact on Terra’s LUNA token and UST token.

After the Ethereum hash rate exceeded 1.11 PH/s, which was its highest ever recorded level, Cosmos (ATOM), Fantom(FTM), Harmony (ONE), and Harmony (11) showed negative performance. Higher hash rates indicate that more miners join the network, which can help to strengthen blockchain security.

Improvements were seen in CME futures and Tether premium

The OKEx Tether premium (USDT), measures the difference in the value of China-based peer to peer (P2P) trades and US dollars. A figure above 100% indicates a high demand for cryptocurrency investment. A 5% discount is usually indicative of heavy selling activity.

OKEx USDT peer-to-peer premium vs. USD. Source: OKX

Tether continued to show strength, with its value exceeding 99% in the last seven days. This is in sharp contrast to three weeks back, when panic selling by Chinese-based traders led to the indicator being slashed to 4%.

CME’s Bitcoin futures contract premium can be used to confirm that the market structure has changed. This measure measures the difference in spot prices between long-term futures contracts and the current spot price in regular market.

This indicator indicates bearish sentiment when it turns negative or fades (backwardation).

BTC CME 2-month forward contracts premium vs. Bitcoin/USD. Source: TradingView

Fixed-month contracts trade at a slight premium. This is because sellers are willing to pay more money to hold settlements longer. Futures should therefore trade at a premium of 0.5% to 2.2% in healthy markets. This is known as contango.

The indicator flirted slightly with the backwardation between Jan. 18 and 24, as Bitcoin fell below $42,000. The BTC signaling that $33,000 might have been a local bottom, the futures market recovered a healthy 0.5% premium.

The market structure is primed for recovery, considering that the total cryptocurrency market capitalization fell 22% by 2022.

Bitcoin bulls will likely feel more comfortable with positions below $40,000.

Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.