The phrase “hindsight 20/20” is the perfect expression for the financial markets because every price chart and analysis is apparent after the move has occurred.
For example, traders who played the pump that raised Bitcoin (BTC) above $43,000 on February 28 should have known that the price would encounter some resistance. Given that the market has previously fallen to $44,500 on several occasions, it makes sense to encourage a retest below $40,000, right?
Bitcoin / US Dollar at Coinbase. Source: Trading View
This is a common misconception, known as “after the fact”, where an event is taken as the cause of a later event, simply because it occurred earlier. The truth is that there will always be analysts and smart people who will ask to hold and pull back after a big price movement.
Meanwhile, on March 2, Cointelegraph reported that Bitcoin “could lead to a $34,000 retest.” The analysis points to “weak momentum” as Russia has just announced its invasion of Ukraine.
Over the past seven days, the total market capitalization of the cryptocurrency market has shown a drop of 11.5% to $1.76 trillion, a move that reversed last week’s gains. Capital assets such as Bitcoin, Ether (ETH) and Terra (LUNA) were affected equally, reflecting nearly 12% losses during the period.
Weekly winners and losers among the top 80 coins. Source: Nomex
Only two symbols have managed to show positive dynamics over the past seven days. WAVES is gathering for the second week in a row that the network has been updated to be compatible with the Ethereum Virtual Machine (EVM). The transition is due to begin this spring, and the new consensus mechanism will ensure a “smoother transition to Waves 2.0”.
THORChain (RUNE) jumped after completing the Terra (LUNA) ecosystem integration, which allowed the blockchain to support all projects based on Cosmos. ThorChain users now have multiple trading and betting options, including the TerraUSD (UST) stablecoin.
Funding interest rates turned positive
Perpetual contracts, also known as reverse swaps, have a built-in rate that is typically charged every eight hours. Perpetual futures contracts are the preferred derivatives for retail traders because their prices tend to match the regular spot markets perfectly.
Exchanges use these fees to avoid currency risk imbalances. A positive funding rate indicates that longer contracts (buyers) require a greater impact. However, the opposite situation arises, when sales transactions (sellers) require an additional effect, since the financing rate becomes negative.
Accumulated future funding rate on March 7. Source: Coinglass
Notice how the seven-day Cumulative Funding Ratio has turned positive across all four major currencies. This data indicates a slight increase in demand from long positions (buyers), but it is not yet significant. For example, a positive 0.10% weekly bitcoin price equals 0.4% a month, which is not a huge deal for traders who are building futures trades.
Usually, with an imbalance caused by excessive optimism, the indicator can easily exceed 4.6% per month.
Options data Estimates of potential price collapse
There is currently no clear trend in the market, but the delta-alternatives deviation of 25% is a clear sign that market participants are charging a lot of money for protection from rising or falling.
If professional traders fear a crash in the bitcoin price, the skew indicator will rise above 10%. On the other hand, generalized stress reflects a negative deviation of 10%.
30-Day Bitcoin Options with 25% Delta Deviation: Source: Laevitas.ch
As shown above, the deviation index held steady at 10% through March 4th, but fell slightly to 7% or 8% during the week. Despite this, the indicator shows that professional traders value higher chances of a market crash.
Retail futures data is mixed, showing a slightly negative reversal of sentiment compared to option makers who are priced at a higher risk of a further crash.
Some might argue that the third break of $44,500 was a nail in the coffin as Bitcoin failed to show strength during a period of global macroeconomic uncertainty and rising commodity demand.
On the other hand, the current market capitalization of the crypto sector at $1.76 trillion cannot be considered a failure, so there is still hope for buyers.