Bitcoin (BTC) rallied 11% on January 20-21, reaching the $23,000 level and breaking bear expectations for a pullback to $20,000. Even more notable is demand from Asia-based retail investors, according to data from a key stablecoin premium indicator.
Traders should note that the Nasdaq-100 Technology Index also gained 5.1% from January 20-23, buoyed by investor hope for China’s reopening following temporary lockdowns triggered by CCP crackdowns. COVID contagion and weaker-than-expected economic data in the US and the Eurozone.
Another bullish piece of news came on January 20, when US Federal Reserve Governor Christopher Waller reinforced market expectations of a 25 basis point interest rate hike in February. A handful of heavyweights are expected to present their latest quarterly results this week to complete the puzzle, including Microsoft, IBM, Visa, Tesla and Mastercard.
In essence, the central bank is pursuing a “soft landing,” or a controlled decline in the economy, including job vacancies and inflation. However, if companies struggle with their balance sheets due to the rising cost of capital, profits tend to plummet and, ultimately, layoffs will be much larger than anticipated.
On Jan. 23, on-chain analytics firm Glassnode noted that long-term Bitcoin investors have held positions in the red for more than a year, making them likely to be more resilient to future adverse price moves.
Let’s look at derivatives metrics to better understand how professional traders are positioning themselves in current market conditions.
The USD Coin (USDC) premium is a good indicator of demand from China-based retail cryptocurrency traders. Measures the difference between China-based peer-to-peer trades and the US dollar.
Excessive buying demand tends to push the indicator above fair value at 103%, and during bear markets, the stablecoin’s market supply is flooded, causing a discount of 4% or more.
The USDC premium currently stands at 103.5%, up from 98.7% on January 19, indicating increased demand for stablecoins from Asian investors. The move coincided with Bitcoin’s 11% daily gain on Jan. 20 and indicates moderate FOMO from retail traders as BTC price approached the $23,000 zone.
Professional traders are not particularly enthusiastic after the recent rally
The long and short metrics exclude externalities that might have affected the stablecoin market only. It also collects data on exchange client positions in spot, perpetual and quarterly futures contracts, providing better position information for professional traders.
Sometimes there are methodological discrepancies between different exchanges, so readers should look at the changes and not the absolute numbers.
The first trend that can be observed is that professional traders on Huobi and Binance are very skeptical of the recent rally. Those traders and market makers did not change their levels from long to short over the last week, which means that they are not confident of buying above $20,500, but they are not willing to open short (bearish) positions.
Interestingly, OKX pro traders reduced their net long (bullish) positions through January 20, but dramatically changed their positions during the last phase of the bull run. On a 3-week time horizon, the ratio of long to short positions is 1.05, down from 1.18 on January 7.
Bears are timid, providing an excellent opportunity for bull runs
The 3.5% stablecoin premium in Asia indicates increased appetite from retail traders. Furthermore, the professional traders short indicator does not show an increase in demand from shorts, even as Bitcoin reached its highest level since August 2022.
Furthermore, the liquidation of $335 million in short (bearish) BTC futures contracts between January 19 and 20 indicates that sellers continue to use excessive leverage, setting up the perfect storm for another leg of the bull run.
Unfortunately, the price of Bitcoin is still highly dependent on the behavior of the stock markets. Considering how resilient BTC has been during the uncertainties surrounding the Digital Currency Group (DCG) bankruptcy, the odds favor a rally towards $24,000-$25,000.
The views, thoughts and opinions expressed herein are solely those of the authors and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article does not contain investment advice or recommendations. All investments and trades carry risk, so readers should do their own research when making a decision.
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the entire amount invested may be lost. The services or products offered are not directed or accessible to investors in Spain.