Bitcoin (BTC) achieved its highest daily close in more than two years on February 20th. However, it faced a tougher challenge than anticipated when it encountered resistance at the $52,500 level, resulting in a rejection and a drop below $51,000 on February 23rd.
On February 22nd, the funding rate for Bitcoin futures contracts briefly indicated an excess of demand for short positions. This sparked speculation of potential further bearish momentum in the market.
Despite Bitcoin’s year-to-date gain of 33.5% in 2024, some analysts believe that the $1 trillion market capitalization at $50,930 could represent a local top. While this level may not have inherent significance beyond being a round number, it has garnered attention from mainstream media, potentially causing fear among investors.
The inflow of Bitcoin into spot Bitcoin exchange-traded funds (ETFs) is likely to have an impact on Bitcoin’s price. On February 22nd, the net inflow on U.S.-listed Bitcoin ETFs reached $251 million, reversing the $36 million outflow observed on the previous day.
Predicting demand for Bitcoin ETFs is nearly impossible, so it is important to shift attention to trading metrics to assess market sentiment. If traders continue to struggle to sustain prices above $52,500, it could indicate a bearish leaning. Negative funding rates for perpetual contracts, which indicate a preference for higher leverage being utilized by sellers, could be a sign of this.
However, fluctuations in funding rates are common as market makers seek to profit through rate arbitrage. Therefore, it is important to cross-reference this data with other indicators to get a more accurate picture of the market’s condition.
One such indicator is the demand for stablecoins in China. The premium of the USD Coin (USDC) stablecoin versus the official yuan rate has remained strong since February 12th, reaching a peak of 3.5%. This is a reliable proxy for retail money entering the cryptocurrency market.
Despite the recent price gains, there appears to be a lack of interest from retail traders, as shown by Google search trends for “buy Bitcoin.” However, this data also suggests that there is still a possibility of a new wave of investors entering the market driven by fear of missing out (FOMO).
It’s worth noting that the absence of demand for leverage longs using Bitcoin perpetual futures doesn’t necessarily indicate bearish sentiment or a lack of interest from retail traders. The slightly negative futures funding rate should not overly concern bullish investors.
This article does not provide investment advice or recommendations. Readers should conduct their own research and make their own decisions when it comes to investment and trading moves.