Bitcoin derivatives have undergone a significant change, indicating that the bullish momentum observed in the past month has dissipated, while Bitcoin’s correlation with traditional markets has noticeably increased.
The price of Bitcoin has remained resilient above $41,800 despite experiencing moderate volatility on January 14, when it dropped to $41,690, resulting in a 3% decrease on January 15.
What’s particularly interesting is that this is the sixth time in less than a month that the $41,800 support level has been tested. Traders are now questioning whether this recent movement is a sign of strength and what factors could potentially drive a rally above $44,000.
Some analysts attribute the 9.1% correction in Bitcoin’s price on January 12 to Bitcoin miners’ outflows. CryptoQuant reported that nearly $1 billion worth of BTC was sent to exchanges, which is the highest level in six years. Investors are concerned that the increase in Bitcoin’s hash rate, which has risen by 44% in the last six months, will compel miners to sell their coins at a faster pace, including their holding positions.
According to CoinShares, a digital asset manager, the average cost to mine one BTC after the halving in April 2024 is expected to surge to $37,800. CoinShares’ report covers 19% of the current Bitcoin mining hashing power and predicts that only five out of the 14 companies analyzed will remain profitable after the halving. As a result, traders have reason to believe that Bitcoin miners will continue to send outflows to exchanges.
Bitcoin’s correlation with gold and stocks has increased. In the 30 days ending on January 15, Bitcoin’s price remained relatively flat, which suggests that the debut of the spot Bitcoin exchange-traded fund (ETF) on January 11 had little impact, at least in the longer term. Interestingly, both the S&P 500 futures and gold prices in U.S. dollars increased by 0.5% during the same period. In fact, Bitcoin has had a high 50-day correlation with the U.S. stock market and gold for the past month. This data indicates that macroeconomic factors have affected both traditional assets and Bitcoin in a similar manner.
Recent announcements from Germany and the U.S. have added to investors’ concerns. Germany, the largest economy in Europe, reported a 0.1% contraction in gross domestic product for 2023 compared to the previous year. The country’s economic ministry also mentioned that early indicators do not signal a quick economic recovery. In the U.S., inflation remains a major concern after the Consumer Price Index grew by 3.4% in November. According to Rubeela Farooqi, chief economist at High Frequency Economics, these readings support the U.S. Federal Reserve’s view that the policy stance should remain restrictive for some time. As a result, investors have realized that central banks may take longer than expected to reduce interest rates, leading them to favor fixed-income investments.
To determine whether Bitcoin investors have become bearish, it is important to analyze the BTC futures premium, also known as the basis rate. Professional traders prefer monthly contracts that do not have a funding rate. In neutral markets, these contracts trade at a premium of 5% to 10% to account for their longer settlement period. Data shows that the BTC futures premium has stabilized at 9%, which is below the neutral threshold. While it is still far from a bearish structure, which would require a premium below 5%, it indicates that Bitcoin investors no longer expect a short-term price increase.
The recent correction to $41,690 may have been triggered by BlackRock’s CEO Larry Fink’s comments on the spot ETF. Fink referred to it as a “mere stepping stone to tokenization” of real-world assets, which could have a negative impact on Bitcoin’s price in the short term.
In conclusion, Bitcoin derivatives have undergone a shift, indicating a loss of bullish momentum, and Bitcoin’s correlation with traditional markets has increased. Various factors, including Bitcoin miners’ outflows and macroeconomic drivers, have influenced Bitcoin’s price. Investors are now adjusting their expectations and no longer anticipate a short-term price increase.