The 20% recovery of Bitcoin in one day is one of the largest in history, but there is a catch


The price of Bitcoin (BTC) rose 20% on January 12, from $ 30,500 to about $ 36,600, on major exchanges. But although the recovery after the correction was strong, there are two warning signs.

1-hour BTC / USDT (Binance) chart. Source: TradingView.com

First, the rate of financing in the futures market remains high. The funding rate is a mechanism that encourages the market minority.

For example, if there are fewer short sellers on the market, buyers will have to pay sellers a fee every eight hours. If the financing rate is high, it means that buyers are paying sellers.

Second, the US dollar strength index (DXY) is starting to recover, which could be a bearish signal for Bitcoin and gold.

What will come after the fall and recovery of Bitcoin?

According to Julien Bittel, fund manager at Pictet Asset Management, the US dollar is “very oversold”.

The dollar has been falling steadily since the coronavirus pandemic began in early 2020, struggling to compete with other reserve currencies like the Japanese yen.

The uncertainty surrounding the United States election and the stimulus further led to the low performance of DXY throughout 2020.

Bittel said that the dollar is now looking oversold and that the dollar’s momentum may strengthen in 2021. He wrote:

“The dollar is looking very oversold. I still think a stronger dollar will be a key issue to watch in 2021. Speculators are back to almost DXY records as a% of total OI. The current drop in DXY is very similar to that of 3/17/02/18. This analogue would suggest that a base could be installed at the end of the first quarter of 2021 ”.

The positive outlook for the dollar poses a risk to Bitcoin’s momentum because alternative reserves of value are priced against the dollar.

Therefore, if the dollar starts to rise, both gold and Bitcoin may have a potential downturn, especially after a strong quarter.

Above the rising dollar, the high financing rate of the Bitcoin futures market is a short-term problem.

A high rate of future financing is not necessarily bad in itself, but if Bitcoin’s price falls while the financing rate remains high, it may increase the likelihood of a correction.

The combination of the dollar’s momentum and the overheated derivatives market makes a retraction more likely in the short term.

The lack of influx of stablecoins is another concern

Ki Young Ju, CEO of CryptoQuant, said that a “second eviction” could occur, as was seen on January 11th. He said miners are selling without an influx of stablecoin, which is a problematic trend.

Bitcoin miner position index. Source: CryptoQuant

Stablecoin inflows usually represent the buyer’s demand for marginalized capital. If deposits of stablecoins on exchanges increase, this indicates a general bullish sentiment in the market. Ki wrote:

“Nothing has changed since yesterday. Miners are selling, no significant #stablecoin inflows, no #Coinbase outflows and $ 15,000 BTC have flowed into exchanges since yesterday. We can have a second dump. “

In the foreseeable future, the ideal scenario for optimistic traders would be to wait for the financing rate to neutralize and for stablecoin inflows to increase.

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Thomas Miles

Cryptocurrency is the most recently discovered currency which will be likely at the help of modernization across the next few decades. With a limited control from the government, the crypto market is independent of many features of a sound market as we know it. Thomas brings these stories to us by weaving them into articles of general importance to all those looking at the fluctuations in the market, or new entries. Thomas is also the founder of Bulletin Bits and is an excellent leader. His leadership is the kind that makes him the most knowledgeable and experienced on the team. His wonderful work ethic and attitude are worthy of imitation!

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