Today Bitcoin has once again updated its own highs, this time above $ 37,000. The total capitalization of the cryptocurrency market for the first time exceeded the $ 1 trillion mark. Overall, analysts maintain positive expectations for bitcoin in the short term, while agreeing with signs of overbought.
Former member of the Board of Governors of the Federal Reserve System Kevin Worsh told CNBC that large cash flows go to Bitcoin from gold:
“I think if you’re under 40, bitcoin is the new gold for you. I think it makes sense to have bitcoin in your portfolio under these circumstances, when the most fundamental change in monetary policy is taking place since Paul Volcker. I’m not surprised that bitcoin does what it does. “
Bitcoin’s rise today comes alongside the unrest in the US. There, supporters of Donald Trump broke into the building of Congress, where a meeting was held to approve the results of the presidential election.
“I’m looking at the bitcoin price. Did you raise it to $ 36,000? Current conditions are exactly what it was created for. The time has come, ”writes the market maker I am Nomad.
Analyst Willie Wu says the rally has already become “warm” but not yet overheated. It refers to the excess of the bitcoin price over the NVT indicator, which is calculated as the ratio of capitalization to daily transaction volume. This excess is now below the 2013 and 2017 bull market peaks.
“This is how high the ‘speculative premium’ is now compared to similar phases in the previous two bull markets. The NVT premium shows the ratio of speculators and investors in the rise in the rate, he writes. – Note how the speculative premium exceeded normal values in 2018-2019 when BitMEX was leading the rise in derivatives dominance. Later, it declined due to the arrival of Michael Saylor in the spot market. “
Analysts at Glassnode say the MVRV Z-Score, used to measure bitcoin’s current to fair value, has recently climbed sharply to above 5. It is currently at the levels of the 2017 main bull market, but still well below its highs. Having reached level 5 then, the price of bitcoin increased 10 times over the next 6 months.
Analyst Alex Saunders noted that Bitcoin and Ether trading volumes on the PayPal app recently hit a new high of around $ 110 million in a single day. While Google Trends data suggests that search engine user interest in cryptocurrency is still far from historically high, retail investor activity is high.
“Demand from retail investors for BTC and ETH is skyrocketing. The general public is starting to catch the wizarding internet money fever, right as the wave of institutional capital arrives, ”writes Saunders.
Rafael Schulze-Kraft, CTO of the Glassnode analytical platform, said that 78% of existing bitcoin coins are illiquid, that is, not available for sale on the market.
“Only 4.2 million BTC (22%) are currently constantly in circulation and available for purchase and sale,” he wrote. – If you look at the changes over the past year, it becomes obvious that the illiquidity of bitcoin is growing. This suggests that the current bull market is supported by incredible volumes of illiquidity. “
There are two main factors that can contribute to a change in the current trend to bearish: a slowdown in the flow of institutional money and cascading liquidations.
The bitcoin futures market has reached a new high in active positions above $ 11 billion. High leverage in trading increases the likelihood of short or long positions squeezing. Funding rates in the futures market indicate an increased use of borrowed funds by the holders of long positions, who, in the event of a noticeable fall in the exchange rate, can add up one after another and intensify the downward movement. In a balanced environment, funding rates are around 0.01%, but now they are closer to 0.15%, which is a very significant deviation.
The CEO of the CryptoQuant analytical platform, Ki Yong Joo, believes that bitcoin may undergo a correction when the inflows of institutional investors’ assets reach a local maximum. In particular, he suggests paying attention to the excess of the price of bitcoin on the Coinbase exchange over the average market and the outflow of capital from it as evidence of investor activity. Recently, the excess of the indicator is $ 100 – 200, and on January 2, the maximum outflow for all time was recorded.
The Chicago Mercantile Exchange (CME) and LMAX Digital, focused on serving institutional investors, are setting new records in daily trading volume with values above $ 2 billion each, which also indicates continued demand.
Thus, fundamental indicators continue to only strengthen over time, however, an increase in the share of marginal long positions creates the risk of a cascade liquidation at any time.