2 Key Derivatives Metrics Signal Bitcoin Traders Expect BTC to Hold $40,000

By March 1, 2022Layer2
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2 Key Derivatives Metrics Signal Bitcoin Traders Expect BTC to Hold $40,000

Whenever Bitcoin (BTC) fails to break key resistance levels, traders gain confidence and add to their altcoin positions. The logic is that unless BTC falls significantly, these moves offer historically reasonable rewards for those shifting their portfolios toward higher risk.

Bitcoin/USD on FTX. Source: TradingView

In the past seven days, the aggregate market cap performance of the cryptocurrency market showed a modest 3% increase to $1.78 trillion. This number roughly corresponds to the performance of Bitcoin, Ether (ETH) and BNB.

However, comparing the winners and losers among the top 80 coins provides skewed results. For example, while the winners averaged a 24.9% positive move, the worst performers fell 5.9%.

Weekly winners and losers among the top 80 coins. Source: nomics

Terra (LUNA) surged 52% on the week after the nonprofit that supports the Terra blockchain ecosystem sold $1 billion in tokens on Feb. 22. The Luna Foundation raised money from Three Arrows Capital and Jump Crypto, a trading group that previously backed Solana’s wormhole cross-bridge platform, by replenishing their stolen $300 million in ether.

On February 21, WAVES gained 50.7% after announcing a partnership with Allbridge that will make the protocol cross-chain interoperable and will support the Ethereum Virtual Machine (EVM) and non-EVM chains like NEAR Protocol, Solana (SOL) and Terra (LUNA ) supports ).

Arweave (AR) surged 28.5% in seven days after Bundlr Network released a high-volume Twitter archiving tool on Feb. 21. The system allows users to save tweets and linked media directly to Arweave’s persistent storage.

Finally, QuickSwap, the implementation of Uniswap (UNI) on the Polygon network, became the largest DEX protocol by volume for decentralized exchanges, hitting a daily average of $40 million in February. Uniswap (UNI) token is up 14.4% over the past seven days, while Polygon (MATIC) is up 8.5%.

Tether premium reflects low retail demand

OKX Tether (USDT) premium is a good gauge of crypto demand from China-based retailers. It measures the difference between China-based peer-to-peer trades and the official US dollar currency.

Excessive buying demand tends to push the indicator 100% above fair value, and during bearish markets, Tether’s market supply is flooded, resulting in a discount of 4% or more.

Tether (USDT) peer to peer vs USD/CNY. Source: OKX

Currently, the Tether premium is 100.3%, which is neutral. Still, there was steady improvement in 2022. This data signals that retail demand is picking up, which is positive considering total cryptocurrency capitalization fell by 19% between January 1st and February 28th.

Futures markets confirm lack of “euphoria”

Perpetual contracts, also known as inverse swaps, have an embedded rate that is typically calculated every eight hours. Exchanges use this fee to avoid imbalances in exchange rate risk.

A positive funding rate indicates that longs (buyers) are demanding more leverage. However, the opposite situation occurs when short sellers (sellers) need additional leverage, making the funding rate negative.

Cumulative perpetual futures funding rate on February 28th. Source: Coinglass

As shown above, the 7-day cumulative funding rate is slightly negative in most cases. This data indicates slightly higher demand from shorts (sellers), but it is insignificant. For example, Luna’s negative weekly rate of 0.65% equates to 2.8% per month, a number that isn’t too worrying for futures traders.

Had there been relevant short risk appetite, the rate would have been over 1% per week, or 4.6% per month.

Perpetual futures are the preferred derivatives of retail traders as their price tends to perfectly replicate regular spot markets. Therefore, despite the negative 19% crypto performance in 2022, the neutral tether premium and the funding rate should be interpreted as positive.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You should do your own research when making a decision.

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