Despite this week’s sharp correction in Bitcoin’s price, BTC’s derivatives data and buying bulls show that the current rally remains intact.
Two weeks ago, few investors would have expected the price of Bitcoin (BTC) to rise to over $20,000. In fact, most had predicted a BTC price of $30,000 by mid-2022 or late 2023 at best.
This means that many holders were probably taken by surprise when the BTC price rose to $34,800 just 17 days after crossing the $20,000 mark.
Generally, analysts expect a sharp correction to follow Profit Secret 150% gain since November, but currently there are no key indicators to support this view.
Despite the recent high euphoria involving the Bitcoin price action, the digital asset faced a significant drop as the price fell $5,600 in 3 hours. More than $1.2 billion in liquidations followed this red candle and, normally, this kind of movement would raise the alarm and lead analysts to predict a possible reversal of the trend.
Each time Bitcoin reaches a new high, investors expect some form of correction. Although it failed to break the $34,500 resistance, the price quickly jumped from its drop below $28,000 on January 4. This event may have frightened some buyers monetarily, but looking under the hood, it is a very optimistic sign.
During the past week, Bitcoin’s dominance reached its highest level since March 2017, reaching 73%. Significant buying activity by institutional investors has been linked to the move, including the addition of 72,950 BTC from Grayscale in December.
In addition, investments by MicroStrategy, Ruffer Investment, MassMutual and SkyBridge Capital are further undisputed evidence of institutional inflow. Thus, BTC is becoming your preferred and almost exclusive investment option among cryptomaps.
The fall of Bitcoin’s dominance triggered a mini altseason
Regardless of the movements of professional traders, retailers have a huge impact on the altcoins. Therefore, the Bitcoin rally has created an opportunity for an alternative season and DeFi related tokens seem to be the most benefited.
Weekly performance of the main cryptomaps.
Last week, Bitcoin surpassed the 15 highest altcoins, which rose 9% on average. More importantly, the overall volume skyrocketed, eliminating any doubts about weekends or holiday pump due to low market share.
Grayscale’s (GBTC) fund has normalized
The Grayscale Bitcoin Trust (GBTC) reached a peak of 41% on December 21, but has since adjusted to its 90-day average at 19%. It is important to note that only qualified institutional clients can acquire shares directly from Grayscale. The rest of the traders need to buy it in the secondary market and this is the reason for some distortions.
Grayscale Bitcoin Trust premium.
This extraordinary level can be explained, in part, by the temporary suspension of the issuance of new shares. By suspending the offer to institutional clients, any additional demand needs to be met by secondary sales, thus creating pressure for a higher premium.
Perpetual future financing is holding steady
Professional traders tend to dominate long term futures contracts with defined due dates. Therefore, by measuring how much futures are much more expensive in comparison to the normal spot market, the trader can evaluate their bullish level. Fixed 3 month futures should generally be traded at a premium of 1.5% or more compared to regular spot exchanges.
Whenever this indicator weakens or turns negative, it is an alarming red flag. This situation, also known as backwardation, indicates that the market is becoming bearish.
Perpetual BTC futures financing rates.
The graph above shows that the indicator briefly maintained levels above 5%, flirting with overbought levels. However, it has remained above 3% despite the recent drop of less than US$28,000 on January 4.
Therefore, the indicator has remained above the 1.5% minimum limit, indicating the optimism of professional traders. This data is a slightly positive reading as the recent unexpected swing has not shaken buyers.
On the other hand, if the cascading settlements had caused the buyers to deleverage, this would have been worrying.
Social network activity reached its peak
Bitcoin enthusiastic Twitter users activity vs. price in USD.