Bitcoin takes aim at $25K as institutional demand increases and economic data eases investor fears
Bitcoin (BTC) price broke above $22,500 on January 20 and has since been able to defend that level, accumulating 40.5% gains in the month of January. The move accompanied improvements in the stock market, which also rose after China dropped its COVID-19 restrictions after three years of strict pandemic controls.
As in recent years, e-commerce and entertainment companies are leading the market. Warner Bros ( WBD ) added 54%, Shopify ( SHOP ) rose 42%, MercadoLibre ( MELI ) climbed 41%, Carnival Corp ( CCL ) 35% and Paramount Global ( PARA ) managed a 35% gain so far. Corporate earnings continue to attract investors’ influx and attention after oil producer Chevron posted its second-biggest annual profit ever, at $36.5 billion.
More importantly, analysts expect Apple ( AAPL ) to post an astounding $96 billion in 2022 earnings on Feb. 2, far surpassing the $67.4 billion profit reported by Microsoft ( MSFT ). Strong earnings also help validate current stock valuations, but they do not necessarily guarantee a brighter future for the economy.
A more favorable scenario for risk assets came mainly from a decline in leading economic indicators, including home builder surveys, trucking surveys and contracting Purchasing Managers Index (PMI) data, according to Evercore ISI senior managing director Julian Emanuel.
According to research by financial firm Matrixport, US institutional investors represent around 85% of recent buying activity. This means that major players “don’t give up on crypto”. The study takes into account the returns that occur during US trading hours, but expects better performance for altcoins compared to Bitcoin.
On the one hand, Bitcoin bulls have reasons to celebrate after the price rallied 49% from a low of $15,500 on November 21st, but the bears still have the upper hand on a larger time frame as BTC is down 39% in 12 months.
Let’s look at Bitcoin derivatives calculations to better understand how professional traders are positioned in the current market conditions.
Asia-based stablecoin demand is approaching the FOMO region
The USD Coin (USDC) premium is a good measure of China-based crypto traders’ demand. It measures the difference between China-based peer-to-peer trades and the US dollar.
Excessive buying demand tends to push the indicator above fair value of 100%, and during bearish markets the stablecoin’s market supply is flooded, causing a discount of 4% or higher.
Currently, the USDC premium stands at 3.7%, down from a 1% discount two weeks prior, indicating much stronger demand for stablecoin purchases in Asia. The indicator shifted yield after the 9% rally on January 21, which caused excessive demand from retail traders.
However, one should dive into BTC futures markets to understand how professional traders are positioned.
The term premium has maintained a neutral stance since 21 January
Retail traders usually avoid quarterly futures because of their price difference from the spot markets. Meanwhile, professional traders prefer these instruments because they prevent the fluctuations in funding rates in a perpetual futures contract.
The annual premium for three-month futures should trade between +4% and +8% in healthy markets to cover costs and associated risks. Therefore, when futures trade below such a range, it shows a lack of confidence from leverage buyers – typically a bearish indicator.
The chart shows positive momentum for the Bitcoin futures premium after the underlying indicator broke above the 4% threshold on January 21 – the highest in five months. This move represents a drastic change from the bearish sentiment presented by the futures discount (backward) to the end of 2022.
Related: Bitcoin price is up, but BTC mining stocks may remain vulnerable through 2023
Traders are watching to see if the Fed sends plans to fluctuate
While Bitcoin’s 40.5% gain in 2023 looks promising, the tech-heavy Nasdaq’s 10% gain over the same period raises suspicion. For example, street consensus is a pivot from the Federal Reserve’s rate hike campaign sometime in 2023.
Bitcoin derivatives and stablecoin demand left panic levels, but if the Fed’s expected soft landing takes place, the risk of a recessionary environment will limit stock market developments and damage Bitcoin’s “inflation protection” appeal.
At the moment, the odds favor bulls as leading economic indicators show a moderate correction – enough to ease inflation, but not particularly worrisome, as solid corporate earnings confirm.
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This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making a decision.
