Bitcoin’s (BTC), sudden crash on January 10 saw the price drop below $40,000 for 110 days. This was a wake up call for leveraged traders. The liquidation of $1.9 billion in long-term (buy) futures contracts that week caused traders’ morale to plummet.
The crypto “Fear & Greed”, which measures extreme fear and greed, fell to 10 on January 10, its lowest point since Mar. 2020 crash. This indicator measures traders’ sentiment by historical volatility, market momentum and volume. It also includes Bitcoin dominance, social media, and Bitcoin dominance.
The panic proved to be a buying opportunity as the total crypto market capitalization rose 13.5% from $1.85 trillion to $2.1 trillion in three days.
Investors are currently analyzing this week’s economic data, which shows that December 2021 retail sales in the United States fell by 1.9% in comparison to the previous month.
Investors should be concerned about stagflation. This is a situation where inflation increases despite a lack of economic growth. Even if Bitcoin’s digital scarcity proves to be a positive feature, markets will still shelter with any asset deemed safe. The first wave could be detrimental to cryptocurrencies.
January 17th, 2017: Top Weekly Winners and Losers Source: Nomics
The Bitcoin price was flat for seven days, which effectively underperformed the altcoin market’s 7% gain. This unusual move can partly be explained by layer-1 decentralized application platforms that showed a positive performance, which was driven by Fantom(FTM), Cardano(ADA), Near Protocols (NEAR), and Harmony (ONE).
The worst week performance was recorded by Loopring (LRC), an open protocol for decentralized Ethereum exchanges that is zkRollup. In December 2021, the DEX volume used by the protocol reached $30 million per day. It is now close to $6 million. Dfinity (ICP), and Chainlink (LINK), are adjusting following a rally of 40% or more in the first ten days of 2022.
Tether’s futures premium and Tether’s premium held well
The OKEx Tether discount (USDT) measures the difference in the official U.S. dollars and China-based peer to peer (P2P), trades. 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: OKEx
Tether indicators bottomed at a 3% discount Dec. 31, which is somewhat bearish, but not alarming. This indicator has maintained a good 2% discount for the past week, which indicates that there have been no panic sales from China-based traders.
CME’s Bitcoin futures contract premium is another indicator that crypto market structure has held. This metric measures the difference between the spot price in regular markets and the longer-term futures contract.
This indicator should be considered a red flag if it becomes negative or fades. This is known as “backwardation” and it indicates that there is bearish sentiment.
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 turned negative on December 9 when Bitcoin traded below $49,000, but it maintained a slight positive number. Although it’s not yet bearish, this shows institutional traders are showing a lackluster confidence.
The market structure has held up well considering that the total cryptocurrency market capitalization has fallen 9.5% so far. If there was excessive demand for short-sellers, the CME futures premium could have been negative.
These fundamentals must not change in order to support calls for Bitcoin prices below $40,000,
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.