has consolidated between a narrow range since Aug. 8, unable to break above $62,000 while strengthening support at $58,000. This consolidation reflects growing uncertainty among traders, especially with the BTC futures funding rate continuing to stay negative, indicating low demand leverage from buyers.
The question now is, does this indicator alone determine the trajectory that the cryptocurrency market is taking, or do historical patterns indicate an imminent rally?.
S&P 500 and gold close to all-time highs while Bitcoin loses steam
What’s been frustrating Bitcoin investors is the outperformance of traditional stores-of-value plays, like the S&P 500 index, currently only 2.5% below its all-time high, and gold, trading within 1% of its record level. In light of how things have been going, with Bitcoin now 19.5% below the March 14 peak of $73,757, it’s quite hard to justify this level for the cryptocurrency—even as a risk-on asset, much less as a hedge looking to play into prospective breaks in the US debt situation.
Also, the sentiment of investors for Bitcoin has not been so high, as the Democratic presidential nominee, Kamala Harris, is yet to take a clear stand on the crypto industry except for those vague comments during her campaigns. On the other hand, the Republican candidate, Donald Trump, is going to sack Gary Gensler from his post as Chair of the US Securities and Exchange Commission. Industry leaders have not hesitated to speak out against Gensler’s overall lack of a clear regulatory framework for crypto firms operating within the US.
It could be that recent economic data from the US, which indicates that the Federal Reserve has been able to wrestle with inflation without plunging the country into recession, also contributed to a lost interest in Bitcoin. For example, retail sales in the US rose 1% in July, surpassing economists’ expectations of an increase of 0.4%. On the employment side, initial jobless claims declined 7,000 from the previous week, according to a Department of Labor report.
Speaking to Yahoo Finance, Yung-Yu Ma, chief investment officer at BMO Wealth Management US, said, “A soft landing is firmly in place.” In general, the thought is that a better macro backdrop underpins the stock market, to the detriment of Bitcoin as an independent store of value.
One of the important trading perspective indicators is demand for leverage through BTC futures contracts. Optimistic markets see opening leveraged positions from bullish investors, which shifts the funding rate in perpetual contracts to positive. Funding rates in the ranges of 0.2% to 1.2% per month usually reflect neutral conditions, while rates below this range are bearish.
Demand for crypto in China has plummeted according to stablecoin data
Data shows the Bitcoin perpetual futures funding rate was mostly negative on Aug. 14 and 15. In fact, the last time this indicator reached the bullish levels was on June 8 when the Bitcoin price tested the $72,000 resistance. This makes perfect sense as perpetual futures are the go-to leverage instrument for retail traders, while monthly contracts, which require rollovers, often trade at a premium or discount relative to spot markets.
One would need to check stablecoin demand in Chinese markets as well to ascertain this lack of buyer confidence is not unique to perpetual futures. Usually, strong retail demand for cryptocurrencies would drive stablecoins to trade at a premium of 2% or more above the official US dollar rate. A discount usually signals fear, with traders looking to exit crypto markets at any price.
On Aug. 15, USD Tether was trading at a 0.2% discount in China—representing reduced demand for cryptocurrencies. Quite a change from Aug. 6, when traders were paying a 2% premium for USDT—the lowest level this indicator has seen in three months.
With BTC derivative metrics, a difficult path for Bitcoin can be drawn to reclaim the $62,000 support. This can be stated using past data wherein it is established that retail traders are the ones who react to the market rather than predict, due to which a breakout cannot be completely negated.
FAQs
1. Why is Bitcoin stagnating?
Bitcoin’s stagnation can be attributed to several factors, such as increased regulatory scrutiny, macroeconomic uncertainty, a decline in market sentiment, or a lack of fresh institutional investments.
2. What are bearish headwinds in the cryptocurrency market?
Bearish headwinds refer to factors that put downward pressure on Bitcoin prices, such as negative news, tightening regulations, economic downturns, rising interest rates, or broader market sell-offs.
3. How long could this stagnation last?
The duration of Bitcoin’s stagnation is uncertain. It could be brief if positive news or regulatory clarity emerges, or it could extend if the bearish trends continue.
4. What are the potential risks during stagnation?
Investors may face risks such as reduced liquidity, increased volatility, and the possibility of sudden sell-offs if market conditions worsen.
5. Is it a good time to buy or sell Bitcoin during stagnation?
Whether to buy or sell depends on individual investment strategies and risk tolerance. Stagnation may offer opportunities for accumulation, but it also carries risks of further declines.