Feb 28, 2023
Bitcoin Bulls Gaining Control Amid Positive Economic Data
The Bitcoin (BTC) price recently broke above $25,000 on February 21, accruing a 53% year-to-date gain. This rally was largely driven by U.S. retail sales data from the previous week, which vastly surpassed the market consensus and gave investors hope for a soft landing and possible averted recession in the U.S. economy.
The U.S. Federal Reserve has been attempting to increase interest rates and scale back its $9 trillion balance sheet reduction without significantly damaging the economy. If successful, this would benefit risk assets, including stocks, commodities and Bitcoin.
However, the cryptocurrency markets took a dip after the $25,200 level was rejected and Bitcoin price dropped 10% between February 21 and February 24. This dip was partially attributed to regulatory pressure, mainly from the U.S., with Securities and Exchange Commission Chair Gary Gensler claiming “everything other than Bitcoin” is potentially a security instrument and falls under the agency’s jurisdiction.
U.S. Treasury Secretary Janet Yellen also weighed in at a G20 meeting, stressing the importance of implementing a strong regulatory framework for cryptocurrencies. International Monetary Fund managing director Kristalina Georgieva added that “if regulation fails”, then banning cryptocurrencies “should not be taken off the table.”
To get a better understanding of how professional traders are positioned in the current market conditions, let’s look at Bitcoin derivatives metrics.
Asia-based stablecoin demand is stagnant
The USD Coin (USDC) premium is a useful indicator to measure the demand for cryptocurrency in Asia. This metric measures the difference between China-based peer-to-peer stablecoin trades and the United States dollar.
Excessive buying demand can pressure the indicator above fair value at 104%. On the other hand, the stablecoin’s market offer is flooded during bearish markets, causing a 4% or higher discount.
The USDC premium indicator in Asian markets has declined to a neutral 2%. This is a positive sign, considering the recent regulatory FUD.
BTC’s futures premium stuck even after price rejected at $25,000
Bitcoin’s quarterly futures are the preferred instruments of whales and arbitrage desks. These fixed-month contracts usually trade at a slight premium to spot markets, indicating that sellers are requesting more money to withhold settlement longer. This situation is known as contango and is not exclusive to crypto markets.
The chart shows traders flirting with the neutral sentiment between February 19 and February 24 as the Bitcoin price held above $23,750. However, the indicator failed to enter the neutral-to-bearish 0% to 5% area as additional regulatory uncertainty was added. This indicates that pro traders were not comfortable with Bitcoin price breaking above $25,000.
Weak economic data shifted control to the bulls
Since February 25, Bitcoin price has gained 4.5%, showing that the impact of the regulatory newsflow has been limited. This was largely due to the global stock market reacting positively on February 27 after the U.S. Commerce Department reported durable goods orders down 4.5% in January versus the previous month.
Since Bitcoin’s 50-day correlation with the S&P 500 futures presently stands at 83%, cryptocurrency traders are more inclined to support risk asset prices strengthening throughout the week.
Unless there’s added pressure from regulators or conflicting economic data, the odds favor Bitcoin bulls considering the BTC futures and Asian stablecoin metrics.
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