Crypto derivatives data signals improving investor sentiment and a possible trend reversal

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This week, the total market value of cryptocurrency has risen 10% to 1.68 trillion dollars, up 25% from the bottom on January 24. It is too early to assume that the market has bottomed out, but two key indicators – the Tether / CNY premium and the underlying CME futures – have recently turned higher, suggesting that positive investor sentiment is supporting the current price rise.

Total market value of cryptocurrencies, excluding stack coins, in billions of US dollars. Source: Trading View
Traders should not assume that a downtrend is over just by looking at price charts. For example, between December 13 and 27, the total market value of the sector jumped from $ 1.9 trillion to $ 2.33 trillion. However, the 22.9% recovery was completely wiped out in nine days when the cryptocurrency markets plunged on 5 January.

Bearish data suggest that the Fed has less room to raise interest rates
Although the current trend is changing, the bears have reason to believe that the formation of the 3-month descending channel has not been broken. For example, the February 4 rally may reflect recent negative macroeconomic data, including a 2% year-over-year increase in retail sales in the eurozone in December, well below market expectations of 5.1%.

Independent market analyst Lynn Alden recently suggested that the US Federal Reserve may postpone raising interest rates after disappointing US employment data on 2 February. The ADP Research Institute also reported 301,000 cuts in the private sector in December, the worst since March. 2020.

Regardless of the reason why Bitcoin (BTC) and Ether (ETH) rose by 10% on Friday, the OKX premium for Tether (USDT) reached its highest level in four months. The index compares peer-to-peer (P2P) trading in China with the official currency of the US dollar.

CNY / USD peer-to-peer trading against CNY / USD. Source: OKH
Excessive demand for cryptocurrencies tends to drive the index above its fair value, or 100%. On the other hand, bear markets tend to flood the strip market, resulting in discounts of 4% or more. Thus, the Friday pump had a huge impact on the Chinese-led crypto markets.

CME futures traders are no longer bearish
To prove that the structure of the crypto market has improved, traders should analyze the premium for Bitcoin futures on CME. The scale compares long-term futures contracts and the traditional spot market price.

There is an alarming red flag when this indicator disappears or becomes negative (withdrawal) as it indicates bearish trends.

These fixed calendar contracts are usually traded at a small premium, which indicates that sellers are asking for more money to postpone the settlement for a longer period. As a result, monthly futures contracts should be traded at an annual premium of between 0.5% and 1% in healthy markets, a situation known as contango.

Monthly futures premium for BTC CME against Coinbase / USD. Source: Trading View
The chart above shows how the index entered withdrawal levels on January 4, when bitcoin fell below $ 46,000 and Friday’s move marks the first trend in a month.

The data show that institutional traders are still below the “neutral” line measured by the futures basis, but they at least refuse to form a bearish market structure.

While the Chinese Yuan premium for Tether showed a reversal, the CME premium reminds us of the great distrust of Bitcoin’s ability to act as an inflation hedger. That said, the lack of enthusiasm among CME traders may be exactly what BTC needs to increase the rally further if $ 42,000 resistance is broken over the weekend.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trade involves risk. You need to do your research when making a decision.

Source: CoinTelegraph

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