2 key derivatives metrics signal that Bitcoin traders expect BTC to hold $40K

When Bitcoin (BTC), fails to break through key resistance levels, traders gain confidence to increase their altcoin positions. These movements have historically provided decent rewards to those who shift their portfolios towards higher risk, even if BTC falls significantly.

Bitcoin/USD at the FTX. Source: TradingView

The cryptocurrency market’s aggregate market capitalization has seen a modest 3% rise to $1.78 trillion in the last seven days. This is approximately the same as Bitcoin, Ether (ETH), and BNB.

Comparing the winners and losers of the top-80 coins can lead to distorted results. The average move of the top-80 coins was positive at 24.9%, with the lowest performing dropping by 5.9%.

Weekly winners and losers from the top-80 coins Source: Nomics

Terra (LUNA), which rallied 52% after Terra, a nonprofit supporting Terra’s blockchain ecosystem, sold $1 billion worth tokens on February 22. Three Arrows Capital raised funds for Luna Foundation, Jump Crypto and Jump Crypto. These trading groups previously assisted Solana’s Wormhole cross-bridge platform with replenishing their stolen $300 Million in Ether.

WAVES gained 50% on February 21st after announcing a partnership agreement with Allbridge. This makes the protocol cross-chain compatible and supports the Ethereum Virtual Machine(EVM), Terra (LUNA) and Solana (SOL).

After Bundlr Network’s February 21 release of a high-volume Twitter archiver, Arweave (AR), rallied 28.5% within seven days. Users can store tweets and related media directly on Arweave’s permanent storage.

QuickSwap, a Uniswap implementation on the Polygon network became the largest decentralized exchange DEX protocol in terms of volume. It reached a $40 million average daily value in February. Uniswap token (UNI) gained 14.4% in the last seven days while Polygon token (MATIC) rose 8.5%.

Low retail demand is reflected in the Tether premium

The OKXTether (USDT premium) is a useful indicator of China-based retail traders crypto demand. It measures the difference in peer-to-peer trading between China and the U.S. currency.

An excessive buying demand can push the indicator above its fair value at 100 percent. During bearish markets, Tether’s market offer is flooded and Tether will receive a discount of 4% or more.

Tether (USDT) peer-to-peer vs. USD/CNY. Source: OKX

The Tether premium is currently at 100.3%. This is neutral. There has been an improvement in 2022. This data indicates that retail demand is increasing, which is good considering the 19% drop in cryptocurrency capitalization between Jan. 1, and Feb. 28, 2018.

Futures markets confirm that there is no “euphoria”.

The embedded rate for perpetual contracts, also called inverse swaps or inverse swaps is usually charged every eight hours. This fee is used by exchanges to avoid imbalances in exchange risk.

Positive funding rates indicate that buyers (longs) are looking for more leverage. The opposite happens when shorts (sellers), require more leverage. Therefore, the funding rate turns negative.

On February 28, the accrued perpetual futures funding rate was 3% Source: Coinglass

The accumulated 7-day funding rate in most cases is slightly negative, as shown above. Although this data suggests a slightly higher demand from sellers (shorts), it is not significant. Luna’s weekly rate of 0.65% is 2.8% per month. This figure is not very concerning for futures traders.

If there was a significant risk appetite from shorts the rate would have been higher than 1% per week, or equivalent to 4.6% per monthly.

Because their price tends closely to regular spot market prices, perpetual futures are the preferred derivatives for retail traders. The neutral Tether premium should be considered positive, even though crypto performance was negative at 19% in 2022.

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