Multiple Bitcoin price metrics show that traders are still bullish on BTC even after the drop below USD 22,000.
When the Bitcoin price (BTC) hit a low of USD 17,580 on December 11, investors remained relatively calm despite some analysts issuing bearish estimates. Last week’s trading may have ended at the same level it started, but Bitcoin’s fundamentals have become even stronger.
Every time Bitcoin reaches a new high, investors expect some kind of correction. Despite being unable to break the $24,000 resistance, the price quickly recovered from its drop below $22,000 on December 21. This event may have given some hope to sellers, but looking under the hood, there is not a single sign of weakness.
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Last week, Bitcoin’s dominance continued to increase as it rose from 64.3% to 67.3%. This move was supported by the prediction of a price of USD 46,000 for 2021 from the Dubai-based financial advisory firm, deVere Group. In addition, the Chicago Mercantile Exchange (CME) exceeded $1.3 billion in futures contracts. This creates indisputable evidence of growing institutional participation in the BTC markets.
This news seems to have given investors more confidence, which caused Bitcoin to reach a new all-time high of $24,300 on December 20.
Last week, Bitcoin outperformed the top 15 altcoins, which were up 7.7% on average. More importantly, the volume of altcoins has been disappointing compared to the 50% increase in Bitcoin. This indicator strengthens the recent performance of the domain rate, as does BTC by setting the level of USD 22,500 as a new support.
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The crypto-currency fund manager, Grayscale Investments, also continued to aggressively add BTC to its portfolio, which now contains USD 13.3 billion in Bitcoin.
Over the course of last week, 11,620 BTCs were added, for a total of 576,650 BTCs. Therefore, it was another excellent week for Grayscale’s Bitcoin Trust. Similar enthusiasm can be seen when analyzing the fund’s premium over the BTC of each share, which currently stands at 0.00095064 BTC.
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As can be seen in the graph above, the premium increased from 18% to 40% in the last seven days. This extraordinary level can be explained in part by a temporary suspension of the issue of new shares.
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Although somewhat unusual, a similar movement occurred six months ago. By stopping supply to institutional clients, any additional demand must be met by secondary sales, thus creating pressure for a higher premium.
Perpetual futures funding rate remains stable
Perpetual contracts, also known as reverse swaps, have an implicit rate that is generally charged every eight hours. The financing rates ensure that there are no exchange rate risk imbalances. Although the open interest of buyers and sellers is the same at all times, the leverage can vary.
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When buyers (long position holders) are the most leveraged, the financing rate becomes positive. Therefore, the buyers will be the ones who pay the commissions or fees. This is especially true during upward cycles, when there is generally more demand for long positions.
Sustainable rates above 2% per week translate into extreme optimism. This level is acceptable during market rallies, but problematic if the BTC price moves sideways or is in a downward trend.
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In situations like these, high buyer leverage increases the likelihood of cascading liquidations when the price drops sharply.