Bitcoin price (BTC) rose 20% on January 12 from $ 30,500 to around $ 36,600 on major stock exchanges. But while the retracement has been strong, there are two warning signs.
First, the funding rate in the futures market is still high. The degree of funding is a mechanism that stimulates a minority in the market.
For example, if there are fewer card sellers in the market, buyers will have to pay the card sellers every eight hours. If the funding rate is high, it means buyers are paying sellers.
Second, the US Dollar Strength Index (DXY) is starting to rebound, which could be a bearish signal for Bitcoin and Gold.
What happens after Bitcoin drops and rebounds?
According to Julian Petel, manager of several assets at Pictet Asset Management, the US dollar is “grossly oversold.”
The dollar has been falling steadily since the start of the coronavirus pandemic in early 2020 and is struggling to compete with other reserve currencies like the Japanese yen.
Uncertainty surrounding the US elections and stimulus measures have reduced the effectiveness of the DXY until 2020.
Zhuk said the dollar now wants to resell and that the dollar’s momentum could be strengthened in 2021. He wrote:
“The dollar looks oversold. I still believe that a strong dollar will be an important topic to watch in 2021. Speculators again approached the benchmark DXY as a percentage of the total OI. The current DXY decline is very similar to the decline from 03/17/18. This analogue may indicate the possibility of creating a base before the end of the first quarter of 2021. ”
A positive outlook on the dollar poses a risk to bitcoin’s speed because value-creating stores are valued against the dollar.
Hence, if the dollar starts to rally, both gold and bitcoin could face a potential drop, especially after a strong quarter.
At the peak of the dollar’s rise, increasing funding for the bitcoin futures market is a short-term issue.
A higher funding rate for futures contracts is not necessarily bad in and of itself, but if the bitcoin price falls and the funding rate stays high, it could increase the likelihood of a correction.
The combination of dollar dynamics and overheating in the derivatives market makes this more likely in the short term.
Another problem is the lack of a stable currency.
CryptoQuant CEO Ki Yong Joo said another “dumping” could occur on January 11. He stated that miners are selling without currency, which is a problematic trend.
Stable currency flows usually reflect buyer’s demand for margin capital. If stable foreign exchange deposits on stock exchanges increase, this indicates a generally bullish market sentiment. Key wrote:
“Nothing has changed since yesterday. Miners are selling, there is a significant inflow of #stablecoin, there is no outflow of #Coinbase, and since yesterday $ 15,000 BTC has been sent to the exchanges. We may have another dump. ”
For the foreseeable future, the ideal scenario for bullish traders is to wait for the funding rate to neutralize and stabilize currency inflows.