Bitcoin price can’t find its footing, but BTC fundamentals inspire confidence in traders

The price of Bitcoin (BTC) fell below $40,000 for the first time in 110 days on Jan. 10, which served as a wake-up call to leveraged traders. Long (buy) futures contracts worth $1.9 billion were liquidated that week, causing dealers’ morale to plummet.

The crypto “Fear & Greed” index, which swings from 0 to 100, reached 10 on Jan. 10, the lowest level since the March 2020 crisis. The indicator uses historical volatility, market momentum, volume, Bitcoin dominance, and social media to gauge trader sentiment.

The panic turned out to be a buying opportunity, as the whole crypto market capitalization increased by 13.5 percent in less than three days, rising from $1.85 trillion to $2.1 trillion.

Currently, investors appear to be absorbing this week’s economic data, which shows that retail sales in the United States fell by 1.9 percent in December 2021 compared to the previous month.

Investors should be concerned about stagflation, which occurs when inflation rises despite a lack of economic development. Even if this indicates that Bitcoin’s digital scarcity is a positive trait, in the long run, markets will still seek refuge in whatever asset is deemed safe. As a result, the initial wave may be harmful to cryptocurrencies.

Bitcoin’s price has remained unchanged for the past seven days, trailing the altcoin market’s 7% gain. Part of this unexpected trend can be explained by layer-1 decentralized application platforms such as Fantom (FTM), Cardano (ADA), Near Protocol (NEAR), and Harmony performing well (ONE).

The weakest performer of the week was Loopring (LRC), a zkRollup open protocol for decentralized exchanges on Ethereum. The protocol’s DEX volume peaked at $30 million per day in early December 2021 but is presently hovering around $6 million. Dfinity (ICP) and Chainlink (LINK) are adjusting following a 40% or greater gain in the first ten days of 2022.

Tether’s premium and the futures premium held up well

The difference between China-based peer-to-peer (P2P) trading and the official US currency is measured by the OKEx Tether (USDT) premium or discount. Excessive demand for cryptocurrency investing is indicated by figures exceeding 100%. A 5% discount, on the other hand, usually implies that there has been a lot of selling activity.

On Dec. 31, the Tether indicator reached a 3 percent discount, which is negative but not frightening. However, this gauge has maintained a 2 percent discount over the last week, indicating that China-based traders are not panicking.

Traders should look at the CME’s Bitcoin futures contracts premium to see if the crypto market structure has held. The differential between longer-term futures contracts and the present spot price in conventional markets is examined using this statistic.

It’s an alarming red signal when this indicator declines or turns negative. Backwardation is another term for this condition, which implies the presence of a bearish mood.