Cryptocurrencies had a volatile week after Bitcoins (Bitcoin) sudden drop to $33,000 on Jan 24. However, the sharp 9% drop fully recovered within 8 hours after BTC price regained the $36,000 support.
On Jan. 26, Bitcoin spiked to $38,960 but failed to hold the level, correcting by 8.8% in the following 8 hours. Factoring in recent ups and downs, Bitcoin has only gained a meager 1.6% over the past seven days.
Despite significant price volatility, overall futures contract liquidations have been relatively low. Longs (buyers) had closed $570 million futures while shorts (sellers) faced $690 million. Data shows that bitcoin futures accounted for 41% of the total $1.25 billion in liquidations.
Regulatory winds could limit BTC’s price rally
The total crypto market cap showed a modest weekly increase of 1.6%, in line with Bitcoin’s performance.
Total crypto market cap, billion USD. Source: TradingView
Notice how the price is making higher lows from Jan. 24th and is currently showing support at $1.75 trillion. Even with a 22% price decline in 2022, the total crypto market cap showed a healthy 12.5% increase since the Jan. 24 low.
Investors seem to be digesting this week’s regulatory news, in which United States Congressman Ted Budd tabled an amendment to remove a statute that allows it US Treasury Department wants to unilaterally ban certain financial transactions without any public contribution.
If the America COMPETES Act of 2022 were passed in its current form, it would deal a significant blow to the cryptocurrency industry, Coin Center executive director Jerry Brito noted.
Investors were negatively impacted by news that the US White House is reported to be a Executive Order on Crypto Getting government agencies to conduct risk assessments of cryptocurrencies as a national security threat.
Metaverse tokens have decoupled following last week’s Apple news
Steady bearish news flow may have been the reason behind the recent cryptocurrency price action, but there have been some standout performances from Metaverse tokens.
The top weekly winners and losers on January 31st. Source: nomics
Apple (AAPL) CEO Tim Cook said in an investor call Jan. 27 that Metaverse applications have a lot of potential and that his company is investing in augmented reality developments on its devices.
The news was enough to catapult Metaverse-related tokens up as much as 36%, including Flow, The Sandbox (SAND), Decentraland (MANA), Enjin Coin (ENJ), and Arweare (AR).
On the other hand Terra (LUNA) was hit after Avalanche-based reserve currency Wonderland Money (TIME) announced that a pending proposal would determine whether or not the project shuts down shop. As a result, the MIM stablecoin fell below 1.00 and some are speculating that this may have had a domino effect on Terra’s LUNA and UST tokens.
Scalability and interoperability blockchain solutions Cosmos (ATOM), Fantom (FTM) and Harmony (ONE) all showed negative performances after the Ethereum hash rate surpassed 1.11 PH/s, the highest ever recorded. A higher hash rate indicates that more miners are joining the network, which helps solidify blockchain security.
Tether Premium and CME futures showed improvement
The OKEx tether (USDT) measures the difference between peer-to-peer (P2P) trades in China and the official US dollar. Figures above 100% indicate excessive demand for cryptocurrency investments. On the other hand, a 5% discount usually indicates strong sales activity.
OKEx USDT Peer-to-Peer Premium vs. USD. Source: OKX
The Tether indicator continued to show strength as it stood above 99% for the past seven days. This is in stark contrast to three weeks ago, when panic selling by China-based traders drove the indicator down 4%.
To confirm that the structure of the crypto market has improved, traders should analyze the premium of the CME bitcoin futures contracts. This metric analyzes the difference between longer-dated futures contracts and the current spot price in regular markets.
Whenever this indicator dips or turns negative (backwardation), it indicates bearish sentiment.
BTC CME 2-month futures contract premium versus Bitcoin/USD. Source: TradingView
These fixed-month contracts typically trade at a slight premium, indicating sellers are charging more money to hold settlements longer. As a result, futures should trade at a premium of 0.5% to 2% in healthy markets, a situation known as contango.
Notice how the indicator flirted with backwardation on Jan. 18-24 as Bitcoin fell below $42,000. However, when BTC showed signals that $33,000 may have been a local bottom, futures markets rallied by a healthy 0.5% premium.
Considering that the aggregate cryptocurrency market cap is down 22% in 2022, the market structure seems poised for a rebound.
Barring a significant change in these fundamentals, bitcoin bulls are likely comfortable adding positions below $40,000.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading movement involves risk. You should do your own research when making a decision.
