Except for a short test of $18,100 on December 1, the Bitcoin (BTC) market remained relatively calm for a week. This shows that investors are beginning to realize that after rising 77% since October last year, Bitcoin may have a longer period of consolidation.
BTC / USD 4-hour chart Source: TradingView
Whenever the price of Bitcoin stabilizes, people always expect higher and higher altcoins to rebound. But this has not been the case recently. Bitcoin’s dominance has increased by 0.8% this week to 63.6%.
This trend indicates that investors are either waiting to break the resistance level of $20,000 or worry about possible negative price fluctuations. Therefore, this trend indicates that their confidence in altcoins has weakened.
The top 16 cryptocurrency performances every week Source: Nomics & CoinMarketCap
The image above shows how Bitcoin gained market share this week. Except for Nem (XEM), the remaining altcoins rose 0.5%. Overall, the transaction volume has been disappointing, although part of the reason is that Bitcoin is hovering at $19,200.
Whenever traders are hesitant, they will reduce their positions and wait for a better entry point. Therefore, the decline in trading volume this week is an adjustment, not a lack of interest.
When Bitcoin prices are consolidating, institutional investors accumulate Bitcoin
The cryptocurrency fund Grayscale Investment continues to actively increase its holdings of Bitcoin in its investment portfolio, and its Bitcoin management scale has exceeded the $10 billion mark.
Grayscale Investment Bitcoin Holdings Source: bybt.com
In the past week, Grayscale has increased its holdings by nearly 13,000 BTC, holding 547,000 BTC in total. Therefore, this is another great week for Grayscale Bitcoin Trust. The same excitement can also be seen by analyzing its premium relative to the effective BTC held per share (currently 0.00095153 BTC).
Grayscale Bitcoin Trust Premium Source: TradingView & Grayscale
As mentioned above, the premium of Grayscale Bitcoin Trust increased to 22% from 11% in the previous week. The average premium for this indicator in the past 90 days was 14%. Therefore, with the recent 6-month high, this indicator reflects positive momentum.
Perpetual futures funding fees remain stable
Perpetual contracts (also called reverse swaps) have an embedded fee rate, which is usually charged every eight hours. The funding rate ensures that there is no transaction risk imbalance. Even if the positions of the buyer and seller are always the same, the leverage ratio may be different.
If the price of the perpetual contract at a certain moment is significantly greater than the spot price, the longs need to pay the shorts. If the contract price is significantly lower than the spot price at a certain moment, the short position needs to pay the long position. This issue is especially important during bull markets, because bull markets usually have more long demand.
Maintaining interest rates above 2% every week means extreme optimism. This level is acceptable when the market rebounds, but it is problematic if Bitcoin prices are trading sideways or in a downward trend.
In this case, the buyer’s high leverage will increase the possibility of large-scale liquidation during unexpected price drops.
BTC Perpetual Futures Funding Rate Source: Digital Assets Data
Please note that despite the stagnation of Bitcoin’s price, the weekly funding rate has remained at a healthy level. This data shows that traders remain optimistic, even though they have not used leverage excessively.
In the early morning of December 1, when Bitcoin tested the $19,900 level, there was also a brief moment of excitement.
The futures premium reached its peak, but has since returned to normal
Funding rates may introduce some distortions because it is the tool of choice for retail traders and therefore will be affected by excessive leverage. On the other hand, professional traders tend to dominate long-term futures contracts with a set expiration date.
By measuring the premium of futures over the general spot market, traders can judge the degree of bullishness for themselves. Futures are usually at a premium of 0.5% or more over the price of spot transactions.
Whenever the premium becomes negative, this is a warning red flag. This situation, also known as spot premium, indicates that the market is turning bearish.
BTC futures premium in January 2021 Source: Digital Assets Data
The chart above shows that this indicator briefly touched 2% on December 1, but then adjusted to 0.9% because Bitcoin failed to break through the $20,000 resistance level. Despite the decline, the premium remained above the minimum threshold of 0.5%, which shows that professional traders are optimistic.
Option put/call ratio
By measuring whether more activity is through call (buy) options or put (sell) options, one can gauge overall market sentiment. Generally speaking, call options are used for call strategies, and put options are used for put strategies.
The ratio of put options to call options is 0.70, indicating that the open position of put options is 30% less than the call options and therefore can be considered as a call.
In contrast, the ratio of put options to call options is 1.20, indicating that there are 20% more open put options than call options, which can be considered a put. One thing to note is that this indicator aggregates the entire Bitcoin options market.
BTC options put/call ratio Source: Cryptorank.io
As the price of Bitcoin approaches $20,000, it is natural for investors to seek downside protection. As a result, the put/call option ratio reached a peak of 0.70 on December 2. Despite the increase, there are still 30% more call options than put options.
After this period of excitement, this indicator has risen to a healthy 0.63. Considering that 0.67 is the average of the past 3 months, this should be considered bullish because fewer investors are buying protective put options.
Bitcoin price trend is stable, but investors are still bullish
Overall, each of the key indicators discussed above have remained stable within the expected range, especially considering the market’s recent fall back to $18,100.
When Bitcoin stays above $19,000, investors may begin to speculate on the possibility of Bitcoin hitting a record high, and some people may rush to make a profit and exit.
Currently, no indicator has sounded the alarm. Although the absence of an altcoin rebound during the Bitcoin consolidation period may dampen investor sentiment, overall bullish sentiment still exists.
