Crypto derivatives data suggest a possible bullish turn

    08 Feb 2022

    While money returns to the crypto market, derivatives data shows that investor confidence is strengthening as the market forms a bottom, signaling a possible trend reversal. The Tether/CNY premium and CME futures basis have recently flipped bullish, indicating a positive investor attitude.

    Over last week the total capitalization of the crypto market raised 10% to $1.68 trillion, which is 25% higher than the bottom on January 24. Although it’s too early to suggest that the market has found a bottom, two key metrics – The Tether/CNY premium and CME futures basis – have recently flipped bullish, indicating that a positive investor attitude is backing the current price recovery, wrote Marcel Pechman on Cointelegraph.

    Lyn Alden, an independent market analyst, suggested recently that the US Federal Reserve could postpone interest rate hikes after disappointing US employment data was released on February 2. The ADP Research Institute also showed a contraction of 301,000 private-sector jobs in December, which is the worst figure since March 2020.

    Regardless of the reason for Bitcoin and Ether gaining 10% on Friday, the Tether (USDT) premium at OKX reached its highest level in four months.

    Excessive cryptocurrency demand tends to pressure the indicator above 100%. On the other hand, bearish markets tend to flood Tether’s market, causing a 4% or higher discount. Therefore, Friday’s pump had a significant impact on crypto markets.

    To further prove that the crypto market structure has improved, traders should analyze the CME’s Bitcoin futures contracts premium. The metric compares longer-term futures contracts and the traditional spot market price.

    It is an alarming red flag whenever that indicator fades or turns negative (backwardation) because it indicates that bearish sentiment is present.

    These fixed-calendar contracts usually trade at a slight premium, indicating that sellers are requesting more money to withhold settlement for longer.

    The data shows that the indicator entered backwardation levels on January 4 as Bitcoin moved below $46,000, and Friday’s move marks the first sentiment trend reversal in a month.

    This reflects that institutional traders remain below the “neutral” threshold as measured by the futures’ basis but at least reject the bearish market structure formation.

    While the CNY/Tether premium might have shown a trend shift, the CME premium reminds us that there’s a lot of distrust in Bitcoin’s capacity to function as an inflationary hedge. Still, the lack of CME traders’ excitement could be exactly what BTC needs to further fuel the rally if the $42,000 resistance is broken over the weekend.

    As recently reported, the rise in altcoins relative to Bitcoin could reflect a greater appetite for risk among crypto investors. On Friday, Bitcoin and other cryptocurrencies rallied, reversing losses from a few days ago. Ether (ETH), the world’s second-largest cryptocurrency, gained 13% over the past 24 hours, while an 11% rise in BTC and the NEAR token surged as much as 20%.

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