Bitcoin’s price surpassed its Christmas record, reaching $ 24,681 at Binance. After BTC’s strong recovery, traders and analysts are exploring short-term bullish and bearish cases.
The market sentiment around Bitcoin remains extremely positive, but there are some concerns raised by analysts in the near future and, as a result, the next move is not well defined.
The financing rate of Bitcoin futures
Bitcoin (BTC) rose above $ 24,600 with a relatively small squeeze. In the past four hours, only $ 95 million in short contracts has been liquidated, suggesting that this increase was not triggered by a slight squeeze. A short compression occurs when many short contracts, or sales orders, are settled on the futures market. This happens when sales orders are over-leveraged, which means that traders are aggressively selling Bitcoin with borrowed capital.
Since the rise was not triggered by a squeeze on sales, the futures market was dominated by buyers and holders of long contracts. This trend has led the funding rate on major Bitcoin futures exchanges to reach 0.1%. The financing rate is a mechanism that futures exchanges use to encourage holders of long or short contracts based on market sentiment. If there are more long contracts, the financing rate becomes positive, which means that buyers must encourage sellers.
The average funding rate for the Bitcoin futures contract on most exchanges is 0.01%. When the financing rate is 0.01%, the trader has to pay 0.01% of his position as an incentive to short sellers, who are the market minority. However, when the financing rate increases and traders who are buying Bitcoin have to pay high financing fees, it becomes less attractive to buy Bitcoin.
Currently, as of December 25, the Bitcoin futures financing rate is hovering at 0.1%. As such, traders and strategists say that Bitcoin is at risk of a setback because it has become less attractive to buy BTC, at least in the short term. Mohit Sorout, the founding partner of Bitazu Capital, pointed at Bitcoin’s extremely high financing rate to suggest that a pullback is likely: “I would be totally surprised if $ btc just kept going up from here.”
Edward Morra, a cryptocurrency derivative trader, echoed a similar feeling. He added that many traders in the futures market started to want or buy Bitcoin after it reached around $ 24,400. After the fall, he expects the funding rate to be restored after a local correction. Morra tweeted: “Derivative investors were not buying the lowest drop, but turning to a bullish trend again at the top, classic. Spot chads will now release them, send prizes and funding to the baseline and continue after a local correction. “
However, some traders disagree that the rate of financing for futures is extremely important during a strong bullish run. Salsa Tekila, a penny Bitcoin trader, noted that BTC’s financing rate reached 0.375% in the 2017 bull market. Considering that the price is much higher, but undoubtedly at an earlier stage of the bull, the trader said the financing rate alone may not be accurate to predict a maximum:
“Operating short on ATH during the upward price discovery trend based solely on financing while waiting for a Wyckoff top seems extremely stupid to me. The financing was 0.375 (max.) For weeks in the 2017 upward trend ”.
Considering Bitcoin’s previous historical price cycle, traders are more cautious in predicting a peak in the short term. This leads to the bullish argument for BTC in the foreseeable future, which revolves around the theory that during a bullish market, historical trends may not be repeated.
The positive argument for Bitcoin in the short term
The positive short-term argument for Bitcoin is based on two main factors: institutional accumulation and altcoin profits that turn into Bitcoin. Both trends are still ongoing, as grayscale entries continue to rise, while altcoins lag behind BTC.
Ki Young Ju, CEO of CryptoQuant, said he expects Bitcoin to be corrected when institutional buying slows down. But, until that happens, what would be visible by evaluating the gray-scale assets under management and the CME futures data, Ju said he would maintain his upward bias: “When institutional buying stops, the price is likely to drop dramatically. The new ATH would be determined by institutional investors when they stopped buying $ BTC. Until then, I will keep my bias high. “
According for the gray scale, the company’s total assets under management fluctuate at $ 16.3 billion, with more than $ 14 billion coming from the Grayscale Bitcoin Trust (GBTC). GBTC’s AUM is considered a metric for assessing institutional sentiment around BTC because it is often the first point of entry for institutions in the Bitcoin market, especially in the United States.
The combination of the strong institutional accumulation of Bitcoin and the dryness of liquidity in the altcoin market drives the Bitcoin case in the short term. Santiment, a network market analysis company, tweeted: “Liquidity has declined rapidly in the vast majority of # crypto assets outside of $ BTC and $ ETH as the year draws to a close.” This indicates that most of the interest in cryptography is still concentrated around Bitcoin.
Based on Material Indicator exchange heat maps, the next major resistances for Bitcoin are at $ 25,000 and $ 30,000. Sales orders are stacked above the two levels, which could cause a temporary downturn as soon as these areas of resistance are reached. Until then, with high institutional demand and the altcoin market lagging behind, sentiment around Bitcoin remains strong.