The phrase “hindsight is 20/20” is a perfect expression for financial markets because every price chart pattern and analysis is obvious after the move has occurred.
For example, traders who played the February 28 bomb that took Bitcoin (BTC) above $43,000 should have known that the price would face some resistance. Considering that the market had previously rejected $44,500 on multiple occasions, asking for a retest below $40,000 made a lot of sense, right?
This is a common fallacy, known as “post hoc”, in which one event is said to be the cause of a later one simply because it happened before. The truth is that there are always analysts and experts calling for continuation and rejection after a significant price move.
Usually after strong #bitcoin rallies like the one we just saw today, we tend to get follow through.
As I said earlier, the sheer disbelief during this rally has me optimistic in the short-term.
Still no guarantees of new highs immediately, but at least maybe a local uptrend.
— Benjamin Cowen (@intocryptoverse) March 1, 2022
Meanwhile, on March 2, Cointelegraph reported that Bitcoin “could force a retest of $34,000.” The analysis cited a “flagging momentum” because Russia had just announced its invasion of Ukraine.
Over the last seven days, the cryptocurrency market’s aggregate market capitalization performance showed an 11.5% retracement to $1.76 trillion and this move erased the gains of the previous week. Large-cap assets like Bitcoin, Ether (ETH) and Terra (LUNA) were similarly affected, reflecting losses of almost 12% in the period.
Only two tokens were able to present positive returns in the last seven days. WAVES rose for the second week in a row as the network upgrade to support the Ethereum Virtual Machine (EVM) progressed. The transition is planned for the spring and the new consensus mechanism will provide a “smoother transition to Waves 2.0”.
THORChain (RUNE) took a leap after completing the integration of its Terra (LUNA) ecosystem, allowing the blockchain to support all Cosmos-based projects. ThorChain users now have more trading and staking options, including the TerraUSD (UST) stablecoin.
Financing rates have taken a positive turn
Perpetual contracts, also known as reverse swaps, have an implied rate that is typically charged every eight hours. Perpetual futures are the derivatives of choice for retail traders because their price tends to closely follow regular spot markets.
Exchanges use this rate to avoid currency risk imbalances. A positive funding rate indicates that longs (buyers) require more leverage. However, the opposite situation occurs when shorts (sellers) demand more leverage, causing the funding rate to turn negative.
Notice how the seven-day cumulative funding rate has turned positive for the top four coins. This data indicates a slightly higher demand from longs (buyers), but it is not yet significant. For example, Bitcoin’s 0.10% positive weekly rate equates to 0.4% monthly, which is not significant for traders building futures positions.
Normally, when there is an imbalance caused by excessive optimism, the rate can easily exceed 4.6% per month.
Options data is pricing in a potential price crash
Currently, there is no clear direction in the market, but the 25% slope of the options delta is a telltale sign when market makers are overcharging for bullish or bearish protection.
If professional traders fear a drop in the price of Bitcoin, the slope indicator will move above 10%. On the other hand, the generalized hype reflects a negative inclination of 10%.
As shown above, the slope indicator stood at 10% until March 4, but dropped slightly to 7% or 8% during the week. Despite this, the indicator shows that professional traders are pricing in the highest odds of a market downturn.
Futures data from retail traders shows a shift away from slightly negative sentiment against options market makers pricing in a higher risk of a further downside.
Some might say that the third failure to break the $44,500 resistance was the nail in the coffin as Bitcoin failed to show strength during a period of global macroeconomic uncertainty and strong commodity demand.
On the other hand, the current market capitalization of the cryptocurrency sector of $1.76 trillion can hardly be considered a failed one, so there is still hope for buyers.
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