3 reasons why Ethereum has been rising faster than Bitcoin price in 2021

Ether has been outperforming Bitcoin in the last few weeks as Ethereum's momentum strengthens.

The price of Ether (ETH), the native cryptocurrency of the Ethereum blockchain network, has been soaring since the beginning of the new year. What's more, it has outperformed Bitcoin (BTC) since Jan. 1, gaining roughly 81% compared to Bitcoin's 26% in their respective USD pairs year-to-date.

Bitcoin, Ether YTD performance. Source: Digital Assets Data

There are three main reasons why ETH has been outpacing BTC throughout the past several days. The factors are Ethereum’s accelerating growth, the improving sentiment around DeFi and BTC’s current period of relatively low volatility.

ETH/BTC 1-day price chart (Binance). Source: TradingView.com

Ethereum is seeing rapid growth fueled by DeFi sentiment

DeFi tokens have been surging rapidly as of late, led by majors such as Aave and SushiSwap, as Cointelegraph reported.

The rally of DeFi tokens is partly fueled by the fast-growing total value locked (TVL) of the DeFi market, which estimates the amount of capital deployed to DeFi protocols.

At over $24 billion, there is more capital locked across DeFi protocols than ever before, which signals massive demand. This is crucial for the momentum of Ethereum — and consequently its Ether token — because more and more apps and tokens rely on its network.

The rising number of users is shown by the massive uptick in Ethereum gas fees. Although high transaction fees are not ideal, Jacob Franek, a partner at DeFi alliance, said this is a positive factor because it shows the willingness of users to pay, indicating genuine demand. He said:

“Cumulative fees, yes. It's the most direct measure of aggregate willingness to pay (i.e., demand) for block space. Ethereum has the most valuable block space in crypto now. Would it be better if individual tx fees were lower? Yes. That will come with L2 and other scaling efforts.”
Ethereum daily transactions chart. Source: Etherscan.io

Other layer one blockchain protocols are growing with significant anticipation to compete against Ethereum, like Polkadot and Cosmos.

However, in the foreseeable future, Ethereum’s network effect and the combined value of DeFi protocols on Ethereum make it less likely that Ethereum’s dominance in the DeFi sector would be challenged in the short term.

BTC is consolidating with low volatility

Throughout the past several days, Bitcoin has been mostly consolidating with low volatility allowing many altcoins to catch up. This has led the demand for altcoins with lower volume and liquidity to increase.

The Ether price rally coincides with what traders describe as “altseason,” a period wherein many altcoins rally in tandem especially when Bitcoin sees small price movements. 

This altseason — historically witnessed in the first months of the year — occurs when Bitcoin is ranging and investors seek high-risk plays. Altcoins usually see bigger price movements because their low liquidity makes them vulnerable to extreme volatility in short periods.

For retail and derivatives traders, the high volatility of the altcoin market makes smaller cryptocurrencies more appealing, at least in the near term, to trade over Bitcoin.

Meanwhile, BTC/USD remains in an uncertain position with some traders warning Bitcoin may break down from its range rather than continuing onto higher highs. If this happens, altcoins are likely to see larger losses compared to BTC. Jonny Moe, a cryptocurrency trader, said:

“Every time I start to convince myself to lean bullish, the longer I stare at this chart the more I start to get bearish again. I just really feel like this is going to breakdown and we close the weekly red, and I can't shake that off yet.”

The case for Bitcoin price dropping to $27K in a possible bearish scenario

Bitcoin could drop to as low as $27,000 in a bearish scenario, analysts say, which would bring panic to the altcoin market.

Some analysts say that the price of Bitcoin (BTC) could drop to $27,000 in a bearish scenario if it falls through the $30,000 support area.

The potential drop to $27,000 is conditional in that BTC would have to break down below $30,500, where it strongly bounced from on Jan. 11.

Bitcoin whale clusters. Source: Whalemap

Which is the short-term Bitcoin bottom?

In the foreseeable future, there are three key technical levels at play for Bitcoin: $34,500, $30,500, and $27,000.

$34,500 has been acting as a critical support area throughout the past 72 hours. Each time BTC dropped to this level, it recovered fairly quickly to around $36,300.

If $34,500 breaks, the next major support level is $30,500. This is where Bitcoin recovered from in the big correction on Jan. 11, when $2 billion worth of futures contracts were liquidated.

A pseudonymous trader known as “Alex,” for example, said that if Bitcoin heads back down to $30,000 with no visible buyer reaction, the trade would be to wait for $27,000 or a move back up above $30,000. He said:

“Decision making is dynamic. Nothing is set in stone. But most likely if price heads back down to 30K 'll be holding off next time. The gameplan is to have ammo to buy the dip (to redeploy). If 30K breaks absolutely no buying until down to 27Ks or back above 30K.”

Similarly, another popular pseudonymous trader known as “Mayne” said that losing $33,000 would likely result in $27,000. Prior to the weekly candle open on Jan. 18, the trader wrote:

“I think we hold here ($33,000) and get a solid bounce going into Monday. If we lose this level, Bitcoin is actually a scam and I denounce any association I ever had with it until $27k.”
4-hour Bitcoin price candle chart with levels. Source: TradingView.com, Mayne

What happens to altcoins if $30,000 breaks?

Alex emphasized that altcoins would likely get “obliterated” with 30% to 50% corrections if Bitcoin falls back down to $27,000.

Altcoins are typically less liquid and have a much lower volume than Bitcoin. Hence, during a bear cycle, altcoins often see steeper pullbacks compared to BTC. The trader explained:

“If for whatever reason $BTC falls to 27K, expect alts to get obliterated with 35%-50% intraday pullbacks. So in that scenario, buying alts will be better than buying $BTC. Definitively better buying alts there than buying $BTC on leverage. Identify the winners, and jump in.”

So far, Bitcoin is slowly recovering from the $34,500 support level, which is a positive trend. It also marks a whale cluster support level, meaning that whales are likely to protect that level with buy orders.

The presence of whale clusters at $34,500 explains why Bitcoin has been seeing strong bounces in that area in the last 48 hours. In the near term, the key to a convincing recovery would be protecting this level.

Chainlink surpasses Bitcoin Cash making LINK the 8th largest cryptocurrency

The market capitalization of Chainlink has surpassed Bitcoin Cash, as the DeFi market continues to prosper with TVL exceeding $24 billion.

Chainlink (LINK), the oracle-focused blockchain protocol, surpassed Bitcoin Cash (BCH) to become the eighth-biggest cryptocurrency as of Jan. 18.

The market capitalization of Chainlink now hovers at $9 billion and roughly $500 million away from the next biggest crypto asset, Litecoin (LTC).

LINKUSDT 1-day price chart (Binance). Source: TradingView.com

Why is Chainlink surging so rapidly?

The price of Chainlink rose by 13% in the last 24 hours and the momentum of LINK likely comes from the positive sentiment around DeFi.

The DeFi market as a whole has been rallying strongly throughout recent months with AAVE and SUHI being the most recent standouts. The uptrend can be attributed to the fast-growing metric called total value locked (TVL), which measures the amount of capital deployed across DeFi protocols.

As of January 18, the TVL across DeFi protocols is estimated to be around $24 billion and it is still rapidly growing.

Total value locked in DeFi. Source: Digital Assets Data

Chainlink benefits from the growth of the DeFi space because oracles feed DeFi protocols with crucial market data.

When DeFi protocols, such as lending platforms or exchanges, fetch price data, they get it from oracles like Chainlink and Band Protocol.

As such, when there are generally more users in the DeFi market, oracles benefit from the increasing TVL of the DeFi market.

Where does LINK go next?

On-chain analysts at Santiment found that dormant tokens are continuing to move. This trend has further fueled the bull trend of various cryptocurrencies, including Bitcoin, Ether and LINK. They said:

“Dormant tokens continue to be moved at rapid rates during this #crypto bull run, and dips in our 'Mean Dollar Invested Age' metric indicate the increased rate of $BTC, $ETH, $LINK, $LTC, and particularly $REN (which triggered its massive +60% week).”

With LINK surpassing an all-time high, it is now technically in “price discovery.” In technical analysis, price discovery happens when the value of an asset exceeds its record-high and begins searching for a new ceiling.

In addition to the positive technicals of Chainlink, the oracle provider also does not have many competitors apart from Band Protocol, which is based on the Cosmos blockchain network.

The network effect of Chainlink would likely act as another catalyst in the foreseeable future, especially as Ethereum (ETH) continues to dominate the DeFi space.

Chainlink surpasses Bitcoin Cash making LINK the 8th largest cryptocurrency

The market capitalization of Chainlink has surpassed Bitcoin Cash, as the DeFi market continues to prosper with TVL exceeding $24 billion.

Chainlink (LINK), the oracle-focused blockchain protocol, surpassed Bitcoin Cash (BCH) to become the eighth-biggest cryptocurrency as of Jan. 18.

The market capitalization of Chainlink now hovers at $9 billion and roughly $500 million away from the next biggest crypto asset, Litecoin (LTC).

LINKUSDT 1-day price chart (Binance). Source: TradingView.com

Why is Chainlink surging so rapidly?

The price of Chainlink rose by 13% in the last 24 hours and the momentum of LINK likely comes from the positive sentiment around DeFi.

The DeFi market as a whole has been rallying strongly throughout recent months with AAVE and SUHI being the most recent standouts. The uptrend can be attributed to the fast-growing metric called total value locked (TVL), which measures the amount of capital deployed across DeFi protocols.

As of January 18, the TVL across DeFi protocols is estimated to be around $24 billion and it is still rapidly growing.

Total value locked in DeFi. Source: Digital Assets Data

Chainlink benefits from the growth of the DeFi space because oracles feed DeFi protocols with crucial market data.

When DeFi protocols, such as lending platforms or exchanges, fetch price data, they get it from oracles like Chainlink and Band Protocol.

As such, when there are generally more users in the DeFi market, oracles benefit from the increasing TVL of the DeFi market.

Where does LINK go next?

On-chain analysts at Santiment found that dormant tokens are continuing to move. This trend has further fueled the bull trend of various cryptocurrencies, including Bitcoin, Ether and LINK. They said:

“Dormant tokens continue to be moved at rapid rates during this #crypto bull run, and dips in our 'Mean Dollar Invested Age' metric indicate the increased rate of $BTC, $ETH, $LINK, $LTC, and particularly $REN (which triggered its massive +60% week).”

With LINK surpassing an all-time high, it is now technically in “price discovery.” In technical analysis, price discovery happens when the value of an asset exceeds its record-high and begins searching for a new ceiling.

In addition to the positive technicals of Chainlink, the oracle provider also does not have many competitors apart from Band Protocol, which is based on the Cosmos blockchain network.

The network effect of Chainlink would likely act as another catalyst in the foreseeable future, especially as Ethereum (ETH) continues to dominate the DeFi space.

Analysts explain why Bitcoin is primed for a rally back to $40k and higher

The price of Bitcoin is hovering under $37,000 after the correction from $40,000 in the past 72 hours. Trader Peter Brandt believes BTC would either face a “complicated” correction or see a broader rally.

Brandt, a long-time trader, pinpointed the daily price chart of Bitcoin to explain that the range is tightening.

When the range of an asset tightens and volatility drops, a major price movement typically occurs.

btcusd bitcoin
The price of Bitcoin with resistance. Source: BTCUSD on TradingView.com

Will the Bitcoin major price movement be a rally?

Whether Bitcoin would see an explosive rally upwards or see a correction remains uncertain.

When it comes to a tight range like this, if the first impulse move is a rally, then a bigger upside movement would likely follow. Brandt said:

“Interest juncture in $BTC. Could be wrong, but I think market needs to blast off from here or a more complicated correction will occur. We’ll see.”

Raoul Pal, the CEO at Real Vision Group, echoed a similar sentiment. Referring to Brandt’s tweet, Pal wrote:

“Yes, totally agree. A triangle likes this will provide a big move one way or the other.”

There are compelling arguments to justify both a bearish pullback and a bullish retest of the $42,000 all-time high for Bitcoin.

Currently, the Coinbase premium that led the Bitcoin rally is non-existent. Throughout the uptrend, Bitcoin was trading higher on Coinbase, which signaled strong buyer demand from the U.S.

If the Coinbase premium returns, this would provide more conviction that the Bitcoin rally would resume.

One positive trend is that the deposits from whales into exchanges are dropping. This means that the overall selling pressure on the market is much lower than where it was in the past few weeks.

Lower selling pressure but lower buyer demand

In a nutshell, the market is stagnant because it is seeing generally lower selling pressure from whales but the buyer demand is not as high as before.

Ideally, Bitcoin would need to see more stablecoin deposits into exchanges and the Coinbase premium to return to see a stronger argument for more upside.

Cantering Clark, a cryptocurrency trader, also noted that the performance of the U.S. dollar is another variable that could potentially affect Bitcoin. He said:

“Too much certainty in the market right now. I am taking a bit of risk off the table. Also, CB leading the selling and not picking up at the lows. Long-term expectations are higher, but in the short term, I think the coming week will be a volatile one. Interested in seeing how Yellen’s comments affect the dollar.”

The post Analysts explain why Bitcoin is primed for a rally back to $40k and higher appeared first on CryptoSlate.

Yearn.finance (YFI) surges 10% on v2 vault teaser

YFI soared 10% within an hour after a V2 vaults teaser was uploaded by the Yearn.finance Twitter handle.

A pseudonymous developer working on the v2 vaults said:

“After 4 months and 8 design iterations, v2 Vaults are finally live! So proud to see this extensive redesign in action! All part of the larger v2 redesign of Yearn. A lot of moving pieces all coming together at last!”

What are Yearn.finance v2 vaults?

Yearn.finance is essentially an interface to all of DeFi. It allows users to access yield-generating products in the Ethereum ecosystem all in one platform.

Vaults are a popular product within the Yearn.finance ecosystem that deploys various strategies to maximize yield for users that stake their holdings in the vaults.

The official Yearn.finance document reads:

“Vaults employ strategies to automate the best yield farming opportunities available. They were designed so that the community could work together to build new strategies to find the best yield.”

V2 vaults provide Yearn.finance users with higher yield-earning opportunities alongside various improvements to the V1 vaults.

Hsaka, a pseudonymous trader, predicted the price of YFI to rise substantially when v2 vaults are completed, merely 24 hours before the actual announcement. The trader wrote:

“I don’t know how any of this concludes, and am pretty apathetic at this point, but the parabolic rise in shitposting from Andre/Banteg makes me think the work on v2 is all but done and about to be deployed soon.”

What happens to YFI after?

Atop a positive market sentiment, the v2 vault release gave YFI much-needed fresh momentum for a newfound rally.

yfi
The 4-hour price chart of YFI. Source: YFIUSD on TradingView.com

It has placed YFI close to price discovery, which would occur when the price of YFI reaches a new all-time high.

Currently, the record-high of YFI is at around $44,000 on Binance, which is 10% away from the day’s peak.

Analysts at intotheblock emphasized that the YFI rally has made the cryptocurrency worth more than Bitcoin. There is a massive discrepancy in the market cap, since the supply of Bitcoin is fixed at 21 million, but the price parity is more symbolic than anything else.

82% of YFI holders are “in the money,” according to the analysts, which indicate a generally positive market sentiment amidst a bull cycle. The analysts explained:

“The Yearn flippening happened again. One YFI is now worth 1.05 $BTC. The price @iearnfinance token $YFI increased by 7.49% and briefly touched the $40,000 mark again. On-chain facts: – 82% of the YFI holders are in the money – 21.17k addresses with a balance in YFI (highest).”

The overall strength of the DeFi market has been another clear catalyst for YFI and other DeFi tokens in recent weeks.

The post Yearn.finance (YFI) surges 10% on v2 vault teaser appeared first on CryptoSlate.

DeFi bull run: Why Aave and SUSHI are surging despite Bitcoin price uncertainty

Aave, SushiSwap, and other major DeFi bluechips are rallying hard despite Bitcoin's consolidation.

DeFi blue-chips, including Aave (AAVE) and SushiSwap (SUSHI), have been rallying hard in the past several days while Bitcoin is seeing range-bound consolidation at around $35,000 as of Jan. 17. 

Both AAVE and SUSHI prices have risen by more than three-fold since December, within merely a month. Investors attribute the bull run of DeFi tokens to the market “re-rating” the major DeFi projects.

SUSHI/USDT 1-day price chart (Binance). Source: TradingView.com

Why is DeFi projects like SUSHI and Aave getting “re-rerated?”

The DeFi market has had an incredible run since 2020. The total value locked (TVL) across DeFi protocols has surpassed $22 billion, demonstrating the market’s fast growth.

DeFi market cap/TVL. Source: Digital Assets Data

However, despite the rapid growth, most DeFi protocols were valued at around $1 billion. In contrast, many “OG” altcoins have multi-billion dollar market caps, yet have lower user activity and no cash flow.

DeFi protocols are unique in that they are cash-flow generating. This means platforms like Aave, Synthetix, and Yearn.finance have small fees that can be used to fund the treasury or compensate users that stake their tokens to the protocols.

Based on the fast-growing userbase of most DeFi protocols and the increase in their cash flow, investors said that DeFi protocols are seeing a key “re-rating moment.”

Santiago R Santos, a partner at ParaFi, a DeFi-focused fund based in the U.S. said:

“DeFi protocols creeping up the top 20 is a key re-rating moment. As stupid as it may seem, it's like being on page 1 of Google search results. So far, DeFi has captured limited mindshare. It's <5% of total crypto market cap. Yet, it has the most usage, innovation & fundamentals.”

Santos emphasized that it is hard to describe any other asset class that is as capital-efficient, profitable, and fast-growing, like DeFi. He added:

“Watch as we go through a fundamental re-rating of DeFi protocols. Point to any other asset class that is as high growth, profitable, and capital efficient as DeFi? I’ll wait.

What’s next for DeFi?

Currently, Aave and SUSHI are valued at $2.2 billion and $900 million respectively. Yet, analysts still say that they are both undervalued at these market caps, given the user activity on both platforms.

SushiSwap, for instance, is continuously surpassing its record-high monthly volume. Ryan Watkins, an analyst at Messari, said SushiSwap is on track to quadruple the all-time high monthly volume it achieved last month. Watkins explained:

“Uniswap is on pace to 1.5x is ATH monthly volume set in Sept 2020. SushiSwap is on pace to 4x its ATH monthly volume set last month. This would produce $6.4 million in earnings for token holders.”
SushiSwap monthly volume. Source: Messari

If the DeFi market continues to grow at the current pace, then major DeFi protocols would see higher cash flows, making them even more undervalued.

Arthur Cheong, a partner at DeFiance Capital, one of the largest DeFi funds in Asia, said on Jan. 13:

“Great piece from Delphi, further reinforcing our argument that Sushiswap is highly underrated is poised for a big re-rating soon.”

$500M in crypto futures liquidated as Bitcoin dips below $34K: What happens next?

The cryptocurrency market saw over $500 million worth of positions liquidated in the last 24 hours as Bitcoin slid below $34,000.

Roughly $500 million worth of cryptocurrency futures positions were liquidated in the past 24 hours. The mass liquidation of positions happened before the price of Bitcoin (BTC) dipped below $34,000 on Jan. 17.

Bitcoin total liquidations. Source: Bybt.com

Why were so many positions liquidated?

Overnight, the price of Bitcoin rose by 6.7% from $35,500 to nearly $38,000. Meanwhile, the futures funding rate sharply increased, indicating an overleveraged market.

Across major exchanges, the funding rate of the Bitcoin perpetual swap futures contract surged to around 0.07%.

Considering that the average funding rate typically hovers at around 0.01%, the futures market was overcrowded on the way up towards $38,000.

As such, Bitcoin price began to drop when several large sell orders hit the market at just above $38,000.  The overheated futures market further intensified the correction.

Overall, $500 million in liquidation is not a large figure compared to the past week, for example, when Bitcoin saw $1 billion in futures contracts liquidated on peak days.

Is the Bitcoin bottom near?

But the drop has not led the futures market’s open interest to decline, causing concerns for a bigger pullback. There are still a large number of traders betting on Bitcoin in the futures market, which opens up the possibility of another long squeeze.

A pseudonymous trader known as “Salsa Tekila” said that if Bitcoin falls below $30,000, it would enter “bear market territory.” Hence, in the near term, it is crucial for BTC to maintain $30,000 as a macro support area. He said:

“If we go below 30k it's bear market territory. We'd have enough underwater bagholders to keep us down for a long while. Until then, could go either way I reckon. If reclaim and hold above 40k, I think 50-60k vicinity plausible. Me thinking $BTC is topped is a bias, not a trade.”

Additionally, according to CryptoQuant CEO Ki Young Ju, the open interest in the futures market is still skyrocketing. All the while, the on-chain signals that indicated buyer demand have stagnated in the past few days.

Based on the combination of the overcrowded derivatives market and the lack of buy signals, Ki wrote that the market is uncertain and that it may retest $30,000 again. He wrote:

“People trade $BTC with low leverage, open interest is skyrocketing, and the long-short ratio looks neutral. Strong on-chain buying signals that have driven this bull market hasn't come up so far. $BTC might retest 30k, so I don't have any position now in this uncertain market.”
Bitcoin estimated leverage on exchanges. Source: CryptoQuant

As Cointelegraph previously reported, traders on Binance, the largest futures exchange by open interest, have started to use lower leverage in the past week. This is indicative of a heightened level of fear in the market and the lack of certainty in the short-term price trend of BTC.

On the other hand, some traders remain optimistic in the medium term, explaining that the current pullback from $40,000-levels was not only expected but also much-needed for the rally not to overheat

Chainlink and Aave hit all-time highs: why are DeFi tokens rallying hard?

Chainlink and Aave, two major DeFi-related cryptocurrencies, are surging strongly in tandem with Bitcoin.

Aave surpassed $200 for the first time in history, solidifying its position as the fourth-largest DeFi token behind Uniswap (UNI).

Chainlink keeps its position as the biggest DeFi token by market capitalization, valued at around $9 billion.

Why are Chainlink and Aave outperforming the rest of the market?

In recent months, the DeFi space has seen a clear increase in demand and mainstream interest.

Earlier this week, billionaire investor Mark Cuban talked about Aave in a tweet that surprised many.

Cuban noted that moving funds through Aave is “crazy expensive” due to the gas costs on Ethereum.

To use DeFi protocols, like Aave, users need to process transactions through the Ethereum blockchain network.

Since Ethereum is decentralized, it processes information via smart contracts. Hence, for every transaction, users have to send a transaction fee in the form of “gas.”

Recently, the cost of gas has increased massively due to the overwhelming demand for Ethereum. Pinpointing the clogged Ethereum network, Cuban wrote:

“Except the gas is always an issue. Just the cost of moving crypto to AAVE is crazy expensive and the number of non crypto options will increase.”

Many industry executives stated that Cuban’s interest in Aave shows that DeFi has become mainstream throughout the past 12 months.

The total value locked in DeFi has surpassed $23 billion, consistently reaching a new all-time high.

Chainlink is a blockchain network that specializes in oracles. Oracles are crucial to DeFi protocols because oracles provide valuable market and price data to Defi platforms.

Hence, Chainlink and Aave are likely to benefit the most from a rapidly-growing DeFi market.

What’s next?

According to a cryptocurrency trader known as “Cantering Clark,” a $30 target for Chainlink in the foreseeable future is quite conservative. He wrote:

“The last break paused for a moment before ripping up 80% before any significant correction. Break of an ATH is a green light for strength. Expect a delay in follow-through always. I think a 30$ $LINK soon is clearly conservative.”

link chainlink
The price chart of Chainlink. Source: LINKUSD on TradingView.com, Cantering Clark

However, some argue that the upside potential of Chainlink is limited relative to other DeFi tokens given its $9 billion valuation. Other major DeFi protocols are still valued under $2 billion.

In the near term, other core pillars of DeFi, such as Synthetix and SushiSwap, are likely to be the next strongly-performing DeFi tokens after Aave and Chainlink.

SushiSwap, for instance, has seen a massive spike in price after seeing a sharp increase in trading volume following a “merger” with Yearn.finance.

The post Chainlink and Aave hit all-time highs: why are DeFi tokens rallying hard? appeared first on CryptoSlate.

Peak fear? Bitcoin futures leverage gets reset by this week’s wild price swings

Bitcoin futures leverage is dropping steeply, indicating that traders are fearful or uncertain about the BTC price trend.

The leverage used in the Bitcoin (BTC) futures market has fallen significantly in the past several days. This indicates that traders are generally uncertain about where BTC is heading in the near term.

Estimated leverage on Binance. Source: CryptoQuant

What is leverage and why is this metric crucial for Bitcoin market sentiment?

In the Bitcoin futures market, traders can borrow up to 125 times of their initial capital to trade Bitcoin.

This allows traders to enter into massive Bitcoin positions that are often much larger than the capital that they have.

During uptrends, traders tend to overleverage their positions because they anticipate bigger upside price movements. But, when the market becomes choppy and extremely volatile, traders become fearful.

If the leverage used in the Bitcoin futures market drops, it simply means that traders are borrowing less capital to trade BTC. It shows a sign of fear, which is likely prompting traders to enter into safer positions with a lower risk of liquidation.

There are a few reasons why traders could be fearful in the current phase of the market. First, Bitcoin rejected the $40,000 resistance level after $42,000. Second, the U.S. dollar index (DXY) is recovering. Third, the high selling pressure coming from Asia.

Filbfilb, a pseudonymous Bitcoin trader, referred to the sell-off on Jan. 16 as a “high IQ play.” He noted that the rise of the U.S. dollar gave it momentum and traders continued to buy every dip.

As a result, despite the price of Bitcoin declining, the funding rate of the futures market consistently increased. Filbfilb wrote:

“Today's sell-off was high IQ play. Embrace the dump dont ignore the dump, you must embrace it. DXY gave momentum, bulls bought it all the way down. They kept selling, DXY provided momentum, Tether FUD provided fear, you couldn't escape to USDT too scared. Embrace the dump.”

The trader also noted that there was a high level of selling pressure coming from Asia. Hence, he explained that buy bids needed to get filled, which led to a correction. He said:

“Bids needed to be filled, the dump was into the daily Asia close, their candle look extra bad, they dumped more. right into the hands of the clever bull. You cannot stop the high IQ whale play. Swim with whale or roll over and die. Embrace the dump, its always out there.”

What comes next?

After a major shakeout, a bullish reversal typically ensues. Many traders were likely shaken out of their positions in the recent correction, considering that it dropped below $36,000.

The funding rate of the Bitcoin futures market also briefly reset, hinting that the number of long contracts significantly decreased after the drop.

With the derivatives market cooled off, the probability of a reversal to the upside has increased. In the short term, the key resistance area for Bitcoin still remains $40,000, followed by $42,000.

Grayscale premium. Source: Bybt.com

David Puell, a Bitcoin trader, also noted that the Grayscale premium has increased, which is indicative of a bullish uptrend.

After Ethereum, ‘next stop will be higher risk alts,’ says Bitcoin investor Raoul Pal

Raoul Pal says higher risk altcoins are likely to follow Ethereum, which rose 60% in the first two weeks of 2021.

As the cryptocurrency market is showing signs of bullish continuation on Jan. 15, Raoul Pal, the CEO of Real Vision Group and an avid Bitcoin (BTC) investor, is optimistic about the price of Ether (ETH). Pal  also says he's looking to add “higher risk alts.”

ETH/USDT 4-hour price chart (Binance). Source: TradingView.com

Is an altseason coming?

Following Bitcoin’s rally above $42,000, many alternative cryptocurrencies, or altcoins, have indeed performed strongly, which is historically in line with altcoins performing well in Q1. 

The rally of altcoins has in part been led by the momentum of Ethereum. After ETH surpassed a major resistance level at $600, it continued to rally above $1,000.

ETH is now close to reaching its all-time high above $1,400, rising 60% in the first two weeks of 2021. Pal wrote:

“By the way, ETH is up 60% in the first 14 days of the year. I think it outperforms all year but I still own much more BTC but have been adding to ETH. Next stop will be higher risk alts.... but much much smaller. More risk = smaller size.”

Possibly due to the improving market sentiment around ETH, altcoins have also performed particularly well in the past week.

As Cointelegraph reported, large-cap altcoins, such as Polkadot (DOT) and Cosmos (ATOM) have seen large gains against both Bitcoin and the U.S. dollar so far in January.

Aave, YFI, Sushi daily sentiment vs. Tweet volume. Source: TheTie

At the same time, decentralized finance (DeFi) tokens, such as Aave, Yearn.finance, and SushiSwap heavily outperformed both Bitcoin and Ether in the last two weeks with data confirming a continuous rise in sentiment and social media activity in recent months.

Meanwhile, the uptrend of DOT and ATOM could be driven by the frenzy around DeFi tokens, considering that the demand for alternative blockchain networks has increased.

The Ethereum blockchain network has become increasingly congested as of late, as the user activity on DeFi protocols significantly rose to push up fees in the process.

BTC vs. ETH (orange), DOT (blue), AAVE (yellow), YFI (purple) year-to-date. Source: Tradingview

Protocols like Aave, SushiSwap, and Synthetix saw rapid growth since November, propelling Aave and Synthetix to billion-dollar market caps.

Wangarian, a capital allocator at the DeFi-focused fund Defiance Capital, told Pal:

“In all seriousness, Decentralised Finance will blow your mind if you confront the negative bias associated with altcoins. High quality ones: $AAVE $SNX $UNI $YFI.”

What’s next for ETH and altcoins?

On Jan. 7, in a tweet thread, Pal said that he believes Ether could achieve $10,000 to $20,000, if it follows the same cycle as Bitcoin.

Pal pinpointed Metcalfe’s law, which states the effect of a telecommunications network is proportional to the square of the number of connected users of the system, to support a bull case for Ether. He wrote:

“Ooops... ETH looks just like BTC - Metcalfe's Law seems to be the key to price for both ETH And BTC… But ETH market cap is growing faster than BTC at the same point ( from first 1m active addresses). ‘Oh shit, really? Is ETH identical in price structure to BTC when it had same number of active addresses?? But, but ,I thought it was a worthless shitcoin???.’”

Although there is no specific correlation between Ether and the rest of the altcoin market, if Ether grows to a trillion-dollar blockchain protocol, major projects developed on top of Ethereum could grow proportionally.

Most notably, DeFi tokens would likely benefit the most from Ethereum’s network effect and rapid growth if it grows at the pace of Bitcoin in 2016.

After Ethereum, ‘next stop will be higher risk alts,’ says Bitcoin investor Raoul Pal

Raoul Pal says higher risk altcoins are likely to follow Ethereum, which rose 60% in the first two weeks of 2021.

As the cryptocurrency market is showing signs of bullish continuation on Jan. 15, Raoul Pal, the CEO of Real Vision Group and an avid Bitcoin (BTC) investor, is optimistic about the price of Ether (ETH). Pal  also says he's looking to add “higher risk alts.”

ETH/USDT 4-hour price chart (Binance). Source: TradingView.com

Is an altseason coming?

Following Bitcoin’s rally above $42,000, many alternative cryptocurrencies, or altcoins, have indeed performed strongly, which is historically in line with altcoins performing well in Q1. 

The rally of altcoins has in part been led by the momentum of Ethereum. After ETH surpassed a major resistance level at $600, it continued to rally above $1,000.

ETH is now close to reaching its all-time high above $1,400, rising 60% in the first two weeks of 2021. Pal wrote:

“By the way, ETH is up 60% in the first 14 days of the year. I think it outperforms all year but I still own much more BTC but have been adding to ETH. Next stop will be higher risk alts.... but much much smaller. More risk = smaller size.”

Possibly due to the improving market sentiment around ETH, altcoins have also performed particularly well in the past week.

As Cointelegraph reported, large-cap altcoins, such as Polkadot (DOT) and Cosmos (ATOM) have seen large gains against both Bitcoin and the U.S. dollar so far in January.

Aave, YFI, Sushi daily sentiment vs. Tweet volume. Source: TheTie

At the same time, decentralized finance (DeFi) tokens, such as Aave, Yearn.finance, and SushiSwap heavily outperformed both Bitcoin and Ether in the last two weeks with data confirming a continuous rise in sentiment and social media activity in recent months.

Meanwhile, the uptrend of DOT and ATOM could be driven by the frenzy around DeFi tokens, considering that the demand for alternative blockchain networks has increased.

The Ethereum blockchain network has become increasingly congested as of late, as the user activity on DeFi protocols significantly rose to push up fees in the process.

BTC vs. ETH (orange), DOT (blue), AAVE (yellow), YFI (purple) year-to-date. Source: Tradingview

Protocols like Aave, SushiSwap, and Synthetix saw rapid growth since November, propelling Aave and Synthetix to billion-dollar market caps.

Wangarian, a capital allocator at the DeFi-focused fund Defiance Capital, told Pal:

“In all seriousness, Decentralised Finance will blow your mind if you confront the negative bias associated with altcoins. High quality ones: $AAVE $SNX $UNI $YFI.”

What’s next for ETH and altcoins?

On Jan. 7, in a tweet thread, Pal said that he believes Ether could achieve $10,000 to $20,000, if it follows the same cycle as Bitcoin.

Pal pinpointed Metcalfe’s law, which states the effect of a telecommunications network is proportional to the square of the number of connected users of the system, to support a bull case for Ether. He wrote:

“Ooops... ETH looks just like BTC - Metcalfe's Law seems to be the key to price for both ETH And BTC… But ETH market cap is growing faster than BTC at the same point ( from first 1m active addresses). ‘Oh shit, really? Is ETH identical in price structure to BTC when it had same number of active addresses?? But, but ,I thought it was a worthless shitcoin???.’”

Although there is no specific correlation between Ether and the rest of the altcoin market, if Ether grows to a trillion-dollar blockchain protocol, major projects developed on top of Ethereum could grow proportionally.

Most notably, DeFi tokens would likely benefit the most from Ethereum’s network effect and rapid growth if it grows at the pace of Bitcoin in 2016.

Alpha Alarm: The Bitcoin outlook

This analysis was brought to you by Alpha Alarm, a Substack newsletter featuring daily crypto analysis. You can subscribe here.

The market sentiment around Bitcoin is improving once again.

Bitcoin strongly recovered from $30,500, solidifying it as a major support area.

Oaktree’s Howard Marks, who was a Bitcoin skeptic for a long time, has become more neutral.

In a note shared by the pseudonymous derivatives trader “Light,” Marks said:

“Back in 2017, my memo There They Go Again… Again included a section on cryptocurrencies in which I expressed a high level of skepticism. This view has been a source of much discussion for me and Andrew, who is quite positive on Bitcoin and several others and thankfully owns a meaningful amount for our family.”

Atop the improving perception of institutions and the public about Bitcoin, various macro factors are buoying Bitcoin.

On January 15, the New York Times reported that the Biden administration plans to outline a $1.9 trillion spending plan.

Any major initiative that relaxes financial and market conditions in the U.S. would positively affect both risk-on assets and stores of value, like Bitcoin.

Grayscale has also reopened its products after closing them last month.

Grayscale BTC holdings [new inflows]. Source: Bybt.com
Grayscale BTC holdings [new inflows]. Source: Bybt.com

It could be coincidental, but the price of Bitcoin began surging upwards by over 20% after Grayscale reopened its products on January 13.

In the U.S., unlike some countries like Canada, there is no Bitcoin exchange-traded fund (ETF) available for institutions.

The Grayscale Bitcoin Trust is the go-to alternative for institutions to gain exposure to Bitcoin.

Hence, new inflows into the trust should serve as a catalyst for Bitcoin in the near term.

What do the charts say?

Based on exchange heatmaps and whale clusters, $37,834 has become a big short-term support level for Bitcoin, with $40,724 as the next resistance.

btcusd bitcoin
The daily price chart of Bitcoin. Source: BTCUSD on TradingView.com

Whale clusters form when whales or high-net-worth investors buy Bitcoin and do not move them afterward.

Clusters often become support areas because whales are likely to protect their positions and buy more Bitcoin if it drops to their entry point.

Bitcoin whale clusters. Source: Whalemap
Bitcoin whale clusters. Source: Whalemap

Exchange heatmaps also show $40,000 as the key resistance level.

On Binance especially, there are large sell orders stacked in between $40,000 and $40,500.

This simply means that if Bitcoin gets through $40,500, an explosive rally upwards would likely ensue.

Once it breaks $40,500, I am expecting a rally to $44,000.

But, if open interest stays at an all-time high and the derivatives market gets overheated once again, a flush drop, like January 12, would likely occur again.

Binance heatmap. Source: Firecharts
Binance heatmap. Source: Firecharts

In the larger picture, one highly encouraging trend is the inflow of stablecoins into exchanges.

In the cryptocurrency market, traders often use stablecoins to hedge their holdings. It is more convenient than cashing out to a bank account because it could take a longer time to buy Bitcoin back due to bank deposits.

When stablecoin deposits into exchanges increase, it means sidelined capital is entering the market. This is typically an optimistic trend.

Stablecoin reserves on exchanges. Source: CryptoQuant
Stablecoin reserves on exchanges. Source: CryptoQuant

On top of all this, Pantera Capital’s Dan Morehead sees Bitcoin surging to $115,000 in 2021.


This analysis was brought to you by Alpha Alarm, a Substack newsletter featuring daily crypto analysis.

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The post Alpha Alarm: The Bitcoin outlook appeared first on CryptoSlate.

The $1200 U.S. stimulus payment invested in Bitcoin in April is now worth $6,495

If the recipient of a U.S. stimulus payment in April invested the check into Bitcoin, the check would now be worth $6,495.

Since April, in merely nine months, the price of Bitcoin has rallied 441%, posting one of its strongest rallies in recent history.

What’s causing the Bitcoin rally?

Bitcoin has been rallying ever since central banks globally have begun to aggressively inject capital into the financial market.

Central banks have been trying to alleviate the pressure from both financial institutions and investors. As a result, concerns regarding inflation have intensified, leading gold and Bitcoin to appear more attractive to investors.

Dan Tapiero, the co-founder of 10T Holdings, said that U.S. Twin Deficits fell to the worst level in 40 years. With interest rates unable to rise, Tapiero said that this is the perfect backdrop for gold and Bitcoin. He said:

Tapiero said:

“Most important macro chart of the month. Bernnnie takes over budget with total deficit worst in 40 years. Interest rates cannot rise with massive debt load. #Dollar bear market must continue or #equities will suffer. Perfect backdrop for #gold and #Bitcoin.”

The interest in Bitcoin and decentralized systems has also increased following the recent controversy at U.S. Capitol.

Jack Dorsey, the CEO of  Twitter, said he has “so much passion for Bitcoin” in a tweet thread explaining the firm’s stance on suspending Donald Trump’s Twitter account. He said:

“The reason I have so much passion for #Bitcoin is largely because of the model it demonstrates: a foundational internet technology that is not controlled or influenced by any single individual or entity. This is what the internet wants to be, and over time, more of it will be.”

The combination of the improving perception of Bitcoin as a store of value and the overall interest in decentralized services is causing the value of BTC to rise.

What happens after another stimulus package?

If the U.S. sees another stimulus package in the foreseeable future, it would likely act as a major catalyst for BTC.

Similar to stocks, retail investors are generally compelled by Bitcoin and the derivatives market.

BTC is significantly more volatile than most major stocks, which could make it attractive for retail traders.

In the near term, traders and analysts are generally optimistic about the short-term trajectory of Bitcoin.

bitcoin btcusd
The price chart of Bitcoin prior to the rally. Source: BTCUSD on TradingView, Scott Melker

Scott Melker, a cryptocurrency trader, said that a break above $36,000 would likely result in a new all-time high. That level has since broke convincingly, as BTC rose above $38,000. Melker wrote before the rally:

“Ascending triangle, at resistance. A break through the top line should send this back to the all time high. Would also be a local higher high after making higher lows. Watching closely.”

The post The $1200 U.S. stimulus payment invested in Bitcoin in April is now worth $6,495 appeared first on CryptoSlate.

Bitcoin surges a day after Grayscale reopens deposits, and it’s not a coincidence

The price of Bitcoin has recovered strongly overnight, rising from around $34,000 to $38,500. The 10% rally coincides with Grayscale reopening its products.

Last month, Grayscale closed its products for new investors. Since Christmas, the Grayscale Bitcoin Trust did not report any additional inflow as a result.

The Grayscale Bitcoin Trust is the go-to investment vehicle for institutions in the U.S. to gain exposure to BTC. Hence, when it is closed to new investors, there are naturally lower capital inflows into the Bitcoin market.

bitcoin price
15-minute price chart of Bitcoin. Source: BTCUSD on TradingView

Is Grayscale kickstarting the Bitcoin rally?

Although it is difficult to prove an exact correlation, the timing of Bitcoin’s relief rally is noteworthy.

Grayscale reopened its products for new investors on January 13. Within 24 hours, Bitcoin surged by 10%, seeing an explosive reaction from buyers to the $30,000 support level.

Bybt, an aggregated derivatives exchange data provider, reported that Grayscale added 2,172 BTC in the last 24 hours. At the price point of $38,500, it is equivalent to $83.6 million.

Throughout the fourth quarter of 2020, institutional investors were the primary catalyst of Bitcoin’s rally.

Grayscale saw large inflows, causing its assets under management to surpass $26 billion. Bakkt, CME, and LMAX Digital, all three that facilitate institutional trades, saw a significant increase in trading volume.

Hence, some analysts suggested that the reopening of Graycale’s products could result in a newfound rally for Bitcoin.

Since Grayscale closed its products to new investors, Bitcoin consolidated for a prolonged period. It saw a steep rejection from $42,000, dropping by 16% on a single day.

Based on the market’s reaction in the last 24 hours, it is becoming more evident that institutions are beginning to play a vital role in the cryptocurrency market.

Unlike the U.S. stock market that deals with trillions of value, the cryptocurrency market is worth just over $1 trillion.

In the stock market, retail investors could overrun institutions and there were instances of this throughout the last quarter of 2020.

Analysts, like Jim Cramer, said that Robinhood traders overwhelmed institutions at times, especially when the market started to become overheated.

In the cryptocurrency market, it is hard for retail investors to overpower institutions and professional traders. The volume of the market is increasing rapidly but it is still well dominated by whales, institutions, and high-net-worth investors.

What comes next?

Due to the volatility and large price swings, the cryptocurrency market sentiment tends to change radically at every correction and recovery.

The pseudonymous derivatives trader “Light” noted:

“Remember how you felt in the $40,000s. Now remember how you felt at $31,000. Now we come full circle to how you feel today. This never-changing cycle and its associated emotions are all you need to imprint in your self, and if you do, you will beat markets.”

Considering this trend, the market would likely see a euphoric sentiment in the foreseeable future, until the next shakeout comes.

The post Bitcoin surges a day after Grayscale reopens deposits, and it’s not a coincidence appeared first on CryptoSlate.

Polkadot skyrockets nearly 30% to $10 billion market cap: What’s behind the rally?

The price of DOT, the native cryptocurrency of Polkadot, surged 24% on the day to achieve a $10 billion valuation.

Polkadot (DOT), the second-largest smart contract protocol in the cryptocurrency market by valuation behind Ethereum, is up nearly 30% in the last 24 hours. Polkadot's market capitalization has also surpassed $10 billion, solidifying its position as the fifth-biggest crypto asset.

There are several major reasons behind DOT’s strong uptrend: strong technical market structure, anticipation of scalable blockchain networks, and the craze around DeFi.

DOT/USDT daily price candle chart (Binance). Source: TradingView.com

Strong technical market structure and rising sentiment

In December 2021, DOT reached a new all-time high, rising to around $11. Since that period, it has continued to see strong momentum and strong recoveries at key support areas.

On Jan. 13, Michael van de Poppe, a full-time trader at the Amsterdam Stock Exchange, pinpointed DOT’s resilience.

He said that if DOT drops to key support areas, e.g. $7.5, it would likely see a rally to a new all-time high. Van de Poppe wrote:

“Polkadot is one of the strongest bouncers today as it hit one of the levels I've marked previously. Probably some more consolidation, however, I think it's just a matter of time before we see $DOT above $20.”

Since then, DOT has rallied above $11 and reached a $10 billion valuation, firmly securing its place at the fifth spot in the top ten above Litecoin.

DOT is now a 30% rally away from overtaking XRP, which still has a market cap of over $13 billion despite an ongoing lawsuit by th U.S. Securities and Exchange Commission (SEC) against Ripple.

At the same time, the price rally is also coinciding with a surge in daily sentiment, according to data from TheTie

DOT price and sentiment (daily). Source: TheTie

Expectations of scalable blockchain networks due to DeFi’s popularity

At the end of 2020, the total value locked in DeFi surpassed $22 billion after an explosive year of growth.

Top protocols, such as Aave, Maker, and Uniswap, all exceed a TVL of $2 billion, with Maker alone housing over $4 billion in locked capital.

However, one major issue with Defi has been the scaling issues of Ethereum. Albeit DeFi protocols are planning to move to layer two solutions, the high fees on Ethereum have caused usability issues for DeFi users.

Maple Leaf Capital, a team of researchers focused on Web3 speculation and building, said in their 2021 prediction that Polkadot would likely kickstart infrastructure and application improvements. They said:

“Libra equivalent / ETH 2.0 + L2 / Polkadot set off the flywheel of infrastructure prompting application improvements and vice versa, whereby ecosystems and stacks compete for capital and talent. I personally bias towards open, permissionless blockchains.”

Polkadot is considered a contender to Ethereum in the sense that it allows smart contracts to run in an ecosystem of smaller blockchains, called parachains.

With parachains and a network of various blockchains, Polkadot is able to process data more efficiently, enabling large decentralized applications to run without scalability problems.

When parachains come live in the foreseeable future, Polkadot is expected to support large-scale DeFi protocols and decentralized applications.

Overall, the combination of the optimistic technical market structure of DOT and the positivity around Polkadot’s smart contract infrastructure is contributing to its extended rally.

Is a new rally brewing as Bitcoin reclaims $38K and stablecoins ‘flooding’ exchanges?

Stablecoin inflows into exchanges spiked right as the price of Bitcoin recovered above $38,000, on-chain data shows.

The price of Bitcoin (BTC) has extended its recovery on Jan. 14, reclaiming the $38,000 level. What's more, the weekly candle has now turned green for the fifth consecutive week despite the 28% crash earlier this week. 

BTC/USD Weekly candle chart (Bitstamp). Source: Tradingview

Meanwhile, stablecoin deposits are flooding into cryptocurrency exchanges, according to data from CryptoQuant. This inflow may act as a short-term catalyst for Bitcoin as it suggests that sidelined capital is moving back into BTC.

Stablecoins inflow on exchanges. Source: CryptoQuant

Why are stablecoins indicative of strong buyer demand for Bitcoin?

In the cryptocurrency market, many traders sell crypto assets, like Bitcoin, to stablecoins rather than cash.

Stablecoins, such as Tether (USDT), is pegged to the value of the U.S. dollar and are tradable across exchanges.

Most exchanges require a complicated Know Your Customer (KYC) verification process for bank transfers, and cash deposits into exchanges could take a long time.

As such, if a whale or a high-net-worth investor wants to buy and sell millions of dollars worth of Bitcoin, stablecoins can be far more convenient than cash.

The high demand for stablecoins from traders has led the valuation of Tether to increase in recent months. Last month, the market cap of Tether surpassed $20 billion. A month later, this number is already above $24 billion, indicating a rise in sidelined capital within the cryptocurrency market.

Dry powder moving to exchanges

Meanwhile, stablecoin deposits into exchanges have increased substantially over the past 24 hours. CryptoQuant tracks the wallets of exchanges and observes stablecoin deposits and outflows.

Exchanges' stablecoin reserve. Source: CryptoQuant

Across major exchanges, stablecoin deposits spiked noticeably on Jan. 13, right as the price of Bitcoin began to recover.

On Jan. 13, the price of Bitcoin dropped to as low as $32,500 after nearly $1 billion worth of futures contracts were liquidated.

Investors were actively buying the dip, as shown by the increase in stablecoin deposits and the increasing open interest of the Bitcoin futures market. As a result, Bitcoin saw a quick turnaround, rallying by more than 10% overnight.

Bitcoin futures open interest. Source: Bybt.com

So what comes next?

Alex Saunders, a cryptocurrency analyst, said that stablecoins are “flooding exchanges,” which is often indicative of a bullish trend.

Prior to the recovery, Michael van de Poppe, a full-time trader at the Amsterdam Stock Exchange, said an all-time high is likely for Bitcoin if it surpasses $38,000 again.

Overnight, the price of Bitcoin pierced through the $38,000 resistance area, which Van de Poppe pinpointed. Hence, in the short term, BTC is on track to retest its record-high. He said:

“Bitcoin didn't change much. It flipped the $33,000 level for support and therefore is eager to test the $37,000-38,000 level. That one needs to flip. If it does, we'll be eager for new all-time highs. If not, more consolidation likely.”

Bitcoin’s rally also coincides with the opening of Grayscale’s products on Jan. 13. If the value of Bitcoin continues to rise, it could propel more institutional and accredited investors to obtain exposure to BTC through the Grayscale Bitcoin Trust (GBTC).

There is also a strong argument to be made that the reopening of GBTC kickstarted the rally, to begin with, signifying that the uptrend is led by institutions, not by retail investors.

Why more analysts are starting to expect Ethereum may hit $10k long-term

More analysts are beginning to believe that Ethereum could achieve $10,000 to $20,000 in the long-term.

The $20,000 target was first brought upon during this bull cycle by Real Vision Group CEO Raoul Pal. The industry executive noted that Ethereum is following Bitcoin’s growth trajectory based on Metcalfe’s law.

Ethereum to $10k, is it possible?

For Ethereum to achieve $10,000, it would have to hit a $1.1 trillion market cap. The current valuation of Bitcoin is hovering at $640 million while ETH’s market cap is at around $120 million.

So, proportionally, it would be possible for Bitcoin to reach a multi-trillion dollar market cap, and for Ethereum to follow suit. Pal said:

“But ETH market cap is growing faster than BTC at the same point ( from first 1m active addresses)… Yeah, ETH might well go to $20,000 this cycle… (exact same as BTC last cycle, by market cap ETH will be bigger). BTC = ETH. Fact. Different assets, different ecosystems, same adoption, same behavioral economics = same same but different…”

Ethereum has the potential to reach such a high valuation mainly due to the significant increase in user activity.

In the past several years, particularly before 2020, there was not a lot of users on Ethereum.

It was the explosive growth of decentralized finance (DeFi) that propelled the upwards trajectory of the Ethereum blockchain network.

In mid-2020, the total value locked in DeFi was hovering at around $1 billion. That figure has increased by 21-fold since, and it is now above $21 billion.

Considering DeFi’s rapid growth and the consistent increase in user activity on Ethereum, analysts are becoming more confident in a more aggressive long-term bull case.

A pseudonymous Ethereum research and developer known as “Antiprosynthesis” said:

“Call me crazy, but I firmly believe that $ETH will hit $10k-$20k within the coming 1-2 years. And this time deservedly so. #Ethereum has firmly established itself to become the universal value settlement layer of the internet, backed by an $ETH with maximum demand/supply ratio.”

Ethereum eth
15-minute Ethereum price chart. Source: ETHUSD on TradingView.com

DeFi could go mainstream

On January 13, Brian Brooks, the U.S. acting comptroller of the currency, wrote an oped on the Financial Times about DeFi. He wrote:

“Banking is headed down the same road. And it’s being driven by the technology behind decentralised finance, or DeFi. But just as the original rules of the road protected us from other drivers, so our current bank regulations exist mainly to prevent human failings.”

Brooks also touched on the possibility of granting banking charters to DeFi protocols in the oped, which is a significant recognition from a key official.

If DeFi sees mainstream attraction i the longer term, it would only strengthen the bull case of Ethereum, especially now that layer two solutions are booming.

DeFi protocols are currently running into scaling issues due to the Ethereum network’s limited capacity. But Eth2 and layer two solutions would offset these issues over time.

The post Why more analysts are starting to expect Ethereum may hit $10k long-term appeared first on CryptoSlate.

Bitcoin price stuck at $32K–$35K: Likely outcomes of BTC ‘flush’ drop

As Bitcoin ranges between $32,000 and $35,500, traders and technical analysts discuss what may come next for BTC.

In the short term, the crucial technical resistance level is $35,500. Throughout the past 24 hours, Bitcoin has continuously rejected at that level. When Bitcoin rose to around $35,500 on Binance earlier on Jan. 13, it saw an 8% drop shortly thereafter, indicating that there is strong selling pressure.

A pseudonymous trader known as “Byzantine General” outlined that there are additional sell orders on Coinbase in the $36,500–$37,000 range, saying “I’m still not taking bets” and adding that he is “casually buying dips with spot.” There is significant uncertainty in the market due to the large price swings between $31,000 and $35,000 with no breakouts or bearish invalidations. The trader also noted that Bitcoin is currently at “VWAP” resistance, with high selling pressure at key resistance levels.

The price of Bitcoin (BTC) is ranging between $32,000 and $35,000 after the big flush drop on Jan. 12. Traders remain mixed around BTC’s short-term trajectory due to various conflicting signals. Some are bullish because of the quick recovery from $30,500 and Grayscale reopening its products to new investors. Others are cautious due to the continuous rejection at the $35,000–$36,000 resistance range.

However, the overall sentiment around Bitcoin has been increasingly positive over the past 24 hours. The swift correction from $41,000 to $30,500 flushed a lot of overleveraged buyers and long contracts. Prior to the correction, the Bitcoin futures funding rate was hovering at over 0.1% most of the time, meaning that the market was significantly overleveraged and overwhelmingly long.

The futures funding rate is a mechanism that balances the market by rewarding buyers when the market is majority short and sellers when the market is majority long. In the Bitcoin futures market, the average funding rate is 0.01%. This means that long contract holders have to pay 0.01% of their position every eight hours to their short-seller counterparty. Because the market was overleveraged for such a long time, when the first big drop happened, the price of Bitcoin began to plummet as consecutive liquidations occurred.

Following the drop, the futures market has become significantly less heated, and most derivatives products have normalized after seeing a rise in interest. Although the Bitcoin futures market’s open interest still remains near its all-time high, the market is healthier than before. This increases the probability of a renewed rally in the foreseeable future.

Positive macro narratives surrounding Bitcoin

According to Ki Young Ju, CEO of trading data platform CryptoQuant, many institutional investors bought Bitcoin at around $30,000. As such, if the price of Bitcoin drops to the $30,000–$32,000 support range, institutions would likely protect that level with large buy orders. This is mainly why Bitcoin saw a large reaction from buyers on Coinbase and other major U.S. exchanges when it dropped to $30,500 on Jan. 12. “The Coinbase outflow on Jan 2nd was a three-year high,” wrote Ju. “Speculative guess, but if these guys are behind this bull-run, they’ll protect the 30k level. Even if we have a dip, it wouldn’t go down below 28k.”

Atop the likelihood of a prolonged whale accumulation at $30,000, there are two key macro narratives that could buoy the sentiment around Bitcoin. First, several mainstream media publications have reported that U.S. President-elect Joe Biden is expected to name Gary Gensler as the chairman of the Securities and Exchange Commission. Gensler previously taught a “Blockchain and Money” course, which has since been released for free on MIT OpenCourseWare. Considering this, Mechanism Capital partner Andrew Kang said that the “probability of #BTC ETF approval just went up significantly.”

If a Bitcoin exchange-traded fund is approved after years of rejection, it would lead to two things. First, it would further legitimize Bitcoin as an established asset class and a store of value. Second, it would enable accredited investors and institutions to reliably invest in Bitcoin. Currently, the Grayscale Bitcoin Trust and the Bitwise 10 Crypto Index Fund are some of the go-to institutional vehicles to invest in cryptocurrencies, including Bitcoin.

Grayscale has reported a significant increase in demand in recent months. On Jan. 12, Grayscale reopened its products to new investors, including investment in GBTC after closing it down in December 2020. If institutions were the main driver of the recent Bitcoin rally, new inflows into GBTC could result in a newfound uptrend in the near term. Coincidentally, it was during the period of the fund’s closure when BTC saw a relatively large correction.

What comes next?

In the foreseeable future, the bullish and bearish scenarios of Bitcoin revolve around two key levels: $30,000 and $35,500. As long as Bitcoin maintains $30,000 as a strong support area, the probability of a breakout above $35,500 increases. A clean move above $35,500 would likely mean a continuation of the rally, which could result in a new leg upward beyond its current all-time high.

Traders and technical analysts say that the current price trend of Bitcoin is quite similar to when Bitcoin dropped to around $16,000 in late November 2020. At that time, Bitcoin consolidated for two weeks before finally breaking out and rallying to $20,000. The BTC price could see a similar trend where it bounces off of the $30,000 support and attempts to break the $35,500–$36,000 resistance range in the near term.

A pseudonymous trader known as “Neko” said that Bitcoin’s rebound has been encouraging thus far. He anticipates BTC to retest $36,000 soon, which would leave the path open for a potential rally back to all-time highs above $42,000: “Very impressive buy backs shown. I’m really liking those wicks on the bottom side of those h4 candles. I think we have found the local bottom for now.”

Another variable to consider in the short term is that the so-called “Kimchi premium” in South Korea has started to decline. When Bitcoin saw trading over $40,000, the premium was consistently hovering over 5%. Ever since the drop, the premium has been hovering at around 2% to 3%. This could indicate that the retail demand for cryptocurrencies in the South Korean market has cooled down slightly following the correction.

Bitcoin has been trading lower on Coinbase as well, which is unusual, as it has been consistently higher than Binance throughout the rally. Coinbase also naturally has a higher BTC price than other major exchanges that use Tether (USDT), due to the minor difference between Tether and the U.S. dollar in the exchange market. Ideally, for the bull trend to resume, the premium on both South Korean exchanges and Coinbase would have to return.

Why this trader thinks the Bitcoin bottom is in based on volume trends

On January 12, the day the price of Bitcoin dropped from $41,000 to $30,500, over $2.5 billion worth of futures contracts were liquidated. The derivatives market, which was extremely overleveraged and overcrowded, saw a massive reset.

Following the shakeout, a pseudonymous trader known as “Byzantine General” said that there is a chance the “bottom” is in.

Strong arguments for a Bitcoin bottom

Percentage-wise, the sudden drop from $41,000 to $30,500 was not as big as corrections in previous bull cycles.

Bitcoin typically sees 30% corrections during a prolonged bull market, and compared to historical pullbacks, a 20% drop is relatively small.

However, the correction on January 12 was significant because it gave the derivatives market a much-needed reset.

Before the drop, the Bitcoin futures market was incredibly overheated. The market was overwhelmingly dominated by buyers and long contract holders.

The funding rate of futures contracts reached historical highs, which indicates that the market is heavily overcrowded with buyers.

When the market gets concentrated to this extent, a long squeeze often occurs. A long squeeze happens when traders in the futures market that use leverage to initiate larger trades get liquidated one after the other.

Cascading liquidations can cause Bitcoin to drop intensely within a short period, as seen on March 13, 2020, when BTC dropped to as low as $3,596 on BitMEX.

Considering that $2.5 billion worth of contracts were liquidated and exchanges saw record-high volumes, the trader said that a bottom could be in. He wrote:

“I just realized that 2 days ago when we had that big drop there was almost 2.5 billi in aggregated liquidations. That’s a record baby. This was also the daily with the highest aggregated spot AND perps volume ever recorded. Not just exchange volume, but also total transaction volume in USD was historically high. Man, I’m starting to think the bottom is in.”

bitcoin btcusd
The price of Bitcoin with volume. Source: BTCUSD on TradingView.com, Byzantine General

Although the drop was only 20%, and it is smaller than historical corrections, the trader also explained that the size of the drop is less relevant in the context of a shakeout.

In the case of the Bitcoin correction on January 12, the price swing caused billions of dollars worth of contracts to get obliterated. Even though the drop itself was not as big, it immensely impacted the futures market and flushed out most derivatives exchanges.

The volume of major exchanges, like Coinbase, exceeded their Q1 2020 volume on that single day, demonstrating the volatility during that period.

What comes next?

In the near future, as it happens after every major correction, Bitcoin is likely to see low volatility.

The ideal scenario for BTC is to consolidate for several days with low volatility for the markets to cool down.

If the derivatives market becomes less overheated as a result, the probability of a prolonged bull run increases.

The post Why this trader thinks the Bitcoin bottom is in based on volume trends appeared first on CryptoSlate.

Another $1 billion wipeout: Why is Bitcoin seeing extreme price moves?

Nearly $1 billion worth of Bitcoin futures contracts have been wiped out once again.

Nearly $1 billion worth of Bitcoin (BTC) futures contracts were liquidated on Jan. 13, a day after the big shakeout. The continuous loop of liquidations is causing extreme volatility and large price swings in the cryptocurrency market.

Total Bitcoin liquidations. Source: Bybt.com

What are futures liquidations, and why are so many Bitcoin positions being liquidated?

In the Bitcoin futures market, traders borrow additional capital to bet against or for Bitcoin. The technical term for this is leverage, and when traders use high leverage, the liquidation threshold gets tighter.

For example, if a trader borrows 10 times the initial capital, a 10% price move to the opposite direction would cause the position to be liquidated. Once it is liquidated, the position becomes worthless and all of the initial capital is lost.

When Bitcoin saw the big 20% drop from $41,000 to $30,500 on Jan. 12, nearly $2 billion worth of futures contracts were liquidated.

However, within 24 hours, another $1 billion worth of contracts were liquidated. Yet, there were no large price swings other than the range between $32,000 and $35,500.

The data indicates that many traders have been overleveraging their positions to short BTC after it recovered from $30,500. Hence, as Bitcoin rallied to $35,500, many short contracts were liquidated.

The cascading liquidations of short contracts are most likely the main reason behind BTC’s swift 20% relief rally from $30,500 to $35,500.

The market is less leveraged compared with the past two weeks. The futures funding rate is moving in between 0.01% and 0.05%, which means buyers still represent the majority of the market but are not dominating the market.

By comparison, when Bitcoin was above $40,000, the futures funding rate consistently remained at around 0.1% to 0.15%. This meant that the market was overwhelmed by buyers and overleveraged traders.

“Healthy” shakeout

Although extreme volatility is not favorable, the shakeout of an overleveraged market is healthy and essential for the continuation of the rally.

If the Bitcoin market remains extremely overleveraged while rallying above $40,000, it risks a much larger correction than 25%.

In previous bull markets, Bitcoin frequently saw 30% to 40% pullbacks, and as such, the recent drop from $42,000 to nearly $30,000 is nothing out of the ordinary for a BTC bull market. 

Additionally, as the pseudonymous trader known as “Byzantine General” noted, the $30,000 area has become a major support level.

The Bitcoin futures market cooling down while solidifying $30,000 as a support area is highly optimistic for the medium-term prospect of BTC.

Whale clusters also identify the $30,000 level as a whale cluster support, which means that this psychological level will certainly be defended by the bulls if the price turns south.

Bitcoin frenzy? Coinbase surpassing $9 billion in daily volume shows big demand

The demand for Bitcoin is increasing as the rising volatility shows. Coinbase, the largest cryptocurrency exchange in the U.S., recorded $9 billion in daily volume on Jan. 11.

Yesterday, Coinbase, Kraken, and several other exchanges and data providers saw technical difficulties amid record-high trading volume.

The explosive increase in the trading volume of Bitcoin led to extreme volatility, causing BTC to drop to around $30,500.

Coinbase recording $9 billion in volume on a single day is noteworthy because it is equivalent to the total volume for Q1 2020.

btcusd bitcoin
The price of Bitcoin. Source: BTCUSD on TradingView.com

There is big demand for Bitcoin at $30ks, what’s next?

The price of Bitcoin briefly dropped below $33,000 yet again on Jan. 12, demonstrating weakening momentum after its initial recovery to $37,000.

Traders remain divided on the market sentiment around Bitcoin. The uncertainty around the short-term price cycle of Bitcoin might be the primary driver of the volatility and high exchange volume.

A pseudonymous trader known as “Salsa Tekila” said that BTC could easily drop to the $31,000 to $32,000 range once again. He said:

“I think we can easily dive back down to $31K-$32K. I wouldn’t bet on it, but I’d consider buying depending on the context. So, not chasing current prices without another dive, setting alert below 33k and above 36k to pay attention, in between I don’t care. Good luck, don’t chase.”

Based on the high volatility around Bitcoin and the high daily volume of Coinbase, cryptocurrency researcher Larry Cermak said he expects Coinbase to reach a valuation of around $100 billion. He wrote:

“You really can’t ask for much more than the growth that Coinbase is experiencing right before the IPO. At this point, I am expecting the stock to trade at more than $100 billion this year. The momentum is there and the mania will happen IMO”

Will this trend get sustained?

At least in the foreseeable future, major cryptocurrency exchanges are expected to see a massive trading volume.

After Bitcoin surpassed $40,000, it has been demonstrating 10% to 20% price swings on a daily basis.

On Jan. 11, as an example, Binance recorded an $8.5 billion daily trading volume for the Bitcoin-to-USDT (Tether) trading pair alone. This is close to Coinbase’s daily trading volume on the same day.

Considering that Bitcoin is moving back and forth between the $31,000 support area and the $36,000 resistance area, the high level of volatility would likely continue.

Below $30,000 would likely indicate the start of a short-term bearish trend. Consolidation under $30,000 could cause the volatility to drop and the daily trading volume of exchanges to slow down in tandem.

However, until the bullish market structure invalidation occurs, the Bitcoin market is expected to see extreme volatility in the foreseeable future.

The post Bitcoin frenzy? Coinbase surpassing $9 billion in daily volume shows big demand appeared first on CryptoSlate.

Bitcoin frenzy? Coinbase surpassing $9 billion in daily volume shows big demand

The demand for Bitcoin is increasing as the rising volatility shows. Coinbase, the largest cryptocurrency exchange in the U.S., recorded $9 billion in daily volume on Jan. 11.

Yesterday, Coinbase, Kraken, and several other exchanges and data providers saw technical difficulties amid record-high trading volume.

The explosive increase in the trading volume of Bitcoin led to extreme volatility, causing BTC to drop to around $30,500.

Coinbase recording $9 billion in volume on a single day is noteworthy because it is equivalent to the total volume for Q1 2020.

btcusd bitcoin
The price of Bitcoin. Source: BTCUSD on TradingView.com

There is big demand for Bitcoin at $30ks, what’s next?

The price of Bitcoin briefly dropped below $33,000 yet again on Jan. 12, demonstrating weakening momentum after its initial recovery to $37,000.

Traders remain divided on the market sentiment around Bitcoin. The uncertainty around the short-term price cycle of Bitcoin might be the primary driver of the volatility and high exchange volume.

A pseudonymous trader known as “Salsa Tekila” said that BTC could easily drop to the $31,000 to $32,000 range once again. He said:

“I think we can easily dive back down to $31K-$32K. I wouldn’t bet on it, but I’d consider buying depending on the context. So, not chasing current prices without another dive, setting alert below 33k and above 36k to pay attention, in between I don’t care. Good luck, don’t chase.”

Based on the high volatility around Bitcoin and the high daily volume of Coinbase, cryptocurrency researcher Larry Cermak said he expects Coinbase to reach a valuation of around $100 billion. He wrote:

“You really can’t ask for much more than the growth that Coinbase is experiencing right before the IPO. At this point, I am expecting the stock to trade at more than $100 billion this year. The momentum is there and the mania will happen IMO”

Will this trend get sustained?

At least in the foreseeable future, major cryptocurrency exchanges are expected to see a massive trading volume.

After Bitcoin surpassed $40,000, it has been demonstrating 10% to 20% price swings on a daily basis.

On Jan. 11, as an example, Binance recorded an $8.5 billion daily trading volume for the Bitcoin-to-USDT (Tether) trading pair alone. This is close to Coinbase’s daily trading volume on the same day.

Considering that Bitcoin is moving back and forth between the $31,000 support area and the $36,000 resistance area, the high level of volatility would likely continue.

Below $30,000 would likely indicate the start of a short-term bearish trend. Consolidation under $30,000 could cause the volatility to drop and the daily trading volume of exchanges to slow down in tandem.

However, until the bullish market structure invalidation occurs, the Bitcoin market is expected to see extreme volatility in the foreseeable future.

The post Bitcoin frenzy? Coinbase surpassing $9 billion in daily volume shows big demand appeared first on CryptoSlate.

Synthetix (SNX), Compound (COMP) and Maker (MKR) soar as Bitcoin stabilizes

Synthetix, Maker, and Compound surge as the DeFi market rallies strongly after Bitcoin price recovers.

On Jan. 11, Bitcoin saw a steep correction as it dropped to around $30,500. It began to recover swiftly after the initial correction, rallying above $36,000 in the next 24 hours that followed.

DeFi tokens, including Synthetix (SNX), Maker (MKR), and Compound (COMP), outperformed the majority of the market. The primary reasons behind their performance are strong fundamentals for each project and improving market sentiment.

Highly anticipated roadmaps

DeFi tokens have generally performed well in recent weeks. Maker, for instance, surged by nearly 100% before the Jan. 11 correction alongside other large-cap cryptocurrencies.

The market sentiment around DeFi has already been generally positive. The release of highly anticipated roadmaps, like in the case of SNX, further amplified the positivity around the DeFi market.

On Jan. 12, Synthetic announced that it is transitioning to Optimistic Ethereum in a blog post detailing its roadmap in 2021.

Optimistic Ethereum is a layer two scaling solution that allows users to transact and process smart contracts without encountering the scalability challenges that plague the Etheruem network.

When the Ethereum blockchain network becomes clogged, traders are forced to pay over $100 to $200 to process complex transactions. On layer two networks like Optimistic Ethereum, it is possible to offset these scaling issues. The Synthetix team explained:

“The transition to Optimistic Ethereum, a layer two scaling solution, will alleviate many of the issues experienced in 2020. There are two primary advantages to this transition: lower gas costs and higher throughput. Lower gas costs are good for all users and make the system more efficient. Higher throughput will enable us in partnership with Chainlink to reduce oracle latency, allowing for leverage via Synthetic Futures as well as a number of other protocol improvements.”

Other DeFi protocols and automated market makers (AMM) plan to eventually move to layer two scaling solutions, like SushiSwap as an example.

Market sentiment turns positive after the OCC statement

On top of the strong roadmaps of the so-called DeFi “bluechip” projects, the U.S. Comptroller of the Currency released an oped in the Financial Times discussing the potential to grant DeFi protocols banking charters.

Brian Brooks, the Acting Comptroller of the Currency and the former chief legal officer at Coinbase, wrote:

“Could the OCC even grant a national bank charter to open-source software that manages deposit-taking, lending, or payments, if it doesn’t have officers or directors? Not yet. Under current law, drawn up on the assumptions of the early 20th century, charters can only be issued to human beings. But those antiquated rules should be revisited, just as regulations that still mandate the use of fax machines should be.”

DeFi giants Synthetix (SNX), Maker (MKR), and Compound (COMP) rallied strongly as the price of Bitcoin (BTC) recovered.

Traders are generally optimistic around DeFi tokens and their resilience as well. Flood, a pseudonymous trader, said:

"Certain alts are holding strong during this dump simply because of their capital efficiency. $SNX is a good example, it’s one of the last coin’s one should sell when in need of cash or wanting to reduce exposure."

Bitcoin’s 20% rebound in one day is one of its biggest ever — But there’s a catch

Bitcoin surged 20% from $30,500, but its overall rally is beginning to show signs of weakness.

The price of Bitcoin (BTC) rose 20% on Jan. 12, from $30,500 to around $36,600, across major exchanges. But while the rebound after the correction has been strong, there are two warning signs.

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

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

For example, if there are fewer short-sellers in the market, then buyers have to pay short-sellers a fee every eight hours. If the funding rate is high, it means buyers are paying sellers.

Second, the U.S. dollar strength index (DXY) is beginning to recover, which could be a bearish sign for Bitcoin and gold.

What comes next after the drop and the recovery of Bitcoin?

According to Julien Bittel, a multiasset fund manager at Pictet Asset Management, the U.S. dollar is “very oversold.”

The dollar has continuously declined since the coronavirus pandemic began in early 2020, struggling to compete against other reserve currencies, like the Japanese yen.

The uncertainty around the United States election and the stimulus further led to the underperformance of the DXY throughout 2020.

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

“The dollar is looking very oversold. I still think a stronger dollar will be a key theme to watch out for in 2021. Speculators are back to being near record short DXY as a % of total OI. The current drop in DXY looks very similar to the one from 03/17-02/18. This analog would suggest a base could be in place by late Q1 2021.”

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

Hence, if the dollar begins to rally, both gold and Bitcoin could see a potential pullback, particularly after a strong quarter.

Atop the rising dollar, the high funding rate of the Bitcoin futures market is an issue in the short term.

A high futures funding rate is not necessarily bad in itself, but if the price of Bitcoin declines while the funding rate remains high, it could raise the probability of a correction.

The combination of the dollar’s momentum and the overheated derivatives market make a pullback more likely in the near term.

Lack of stablecoin inflow is another concern

Ki Young Ju, CEO of CryptoQuant, said that a “second dumping” could occur, as was seen on Jan. 11. He stated that miners are selling with no stablecoin inflows, which is a problematic trend.

Bitcoin Miners Position Index. Source: CryptoQuant

Stablecoin inflows typically represent buyer demand from sidelined capital. If stablecoin deposits to exchanges increase, it indicates an overall bullish market sentiment. Ki wrote:

“Nothing has been changed since yesterday. Miners are selling, no significant #stablecoin inflows, no #Coinbase outflows, and 15k $BTC flowed into exchanges since yesterday. We might have second dumping.”

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

Bitcoin hit by $2.7 billion futures liquidation frenzy: What happens next?

After a massive cascade of liquidations, Bitcoin price could be heading towards recovery, based on network fundamentals.

Over $2.7 billion worth of futures contracts got liquidated in the last 24 hours, based on data from Bybt.com. This caused the price of Bitcoin (BTC) to see a large drop in a short time frame as it plunged from over $41,000 to sub-$32,600.

BTC/USDT 4-hour price chart (Binance). Source: TradingView.com

Why would mass liquidations cause Bitcoin to drop?

In the futures market, liquidations of positions occur because traders are borrowing additional capital to trade with larger positions.

For example, exchanges in the Bitcoin futures market typically offer up to 100x leverage. This allows traders to borrow 100 times of their initial capital to trade BTC.

The downside of leverage is that when the price of Bitcoin sees a minor drop, it can cause a position to get liquidated, or be worthless.

For instance, let’s say a trader uses 10x leverage and borrows 10 times of his capital to buy Bitcoin at $40,000. If the price drops 10% to $36,000, the position would get liquidated.

When a long position gets liquidated, the position is then sold to the market. Hence, if the majority of the market is longing Bitcoin and long contracts begin to get liquidated, it creates massive selling pressure.

On Jan. 11, the Bitcoin market saw a massive long squeeze triggered by large sell orders on Coinbase. As whales or high-net-worth investors sold, it caused many long contracts to get liquidated in a matter of hours.

The consecutive liquidations led to a domino effect, resulting in a steep sell-off and a 16% correction.

But, one optimistic sign is that the correction came to an end at around $32,700, which Whalemap analysts described as a whale cluster support area.

A whale cluster forms when the whales buy Bitcoin at a certain level and do not move them. This level often turns into a support area because whales are likely to double down on their entries if a major dip occurs and the price of BTC drops back to that level.

Bitcoin whale clusters predicted massive drop. Source: Whalemap

What happens next?

Although Bitcoin saw a large drop, the overall market sentiment around BTC remains generally optimistic.

As Cointelegraph reported, Elias Simos, a protocol specialist at Bison Trails, pinpointed that the number of whales actually increased after Bitcoin saw a big price drop.

The trend shows that whales were actually accumulating as the cascade of liquidations occurred, which is positive. Simos wrote:

“Addresses with more than 1k $BTC continue growing at the expense of all others–even as this most recent downturn is taking effect. While you were selling, whales were gobbling up your Bitcoin.”

Analysts at Glassnode, an on-chain analytics firm, explained that the fundamentals of Bitcoin remain intact despite the drop. They emphasized that the Bitcoin network’s hash rate and mining difficulty are still at all-time highs. The analysts noted:

“While $BTC dipped in value today, on-chain fundamentals remain strong, pointing to a healthy network. #Bitcoin mining difficulty and hash rate are at ATHs.”

While this current 15%-25% is the biggest pullback for this bull cycle to date, it’s worth noting that numerous 30% corrections occurred during Bitcoin’s 2017 bull cycle.  

As Cointelegraph reported earlier, the current BTC price pullback coincides with a potential bottom formation of the Dollar Strength Index.

Key Bitcoin price metric signals BTC may be near a local top

Bitcoin miners are selling at a level unseen since July 2019 when BTC price topped out at $14,000.

According to data from CryptoQuant, miners appear to be selling large amounts of Bitcoin (BTC). Historically, heightened selling pressure from miners marked a local top and led to sharp, prolonged corrections.

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

Why are Bitcoin miners selling?

In May 2020, on-chain analyst Willy Woo said that there would be two sources of unmatched selling pressure in the market after the block reward halving.

Woo pinpointed Bitcoin miners and cryptocurrency exchanges selling the fees they gain in the form of crypto assets as the sources of selling pressure. He said:

“There’s only two unmatched sell pressures on the market. (1) Miners who dilute the supply and sell onto the market, this is the hidden tax via monetary inflation. And (2) the exchanges who tax the traders and sell onto the market.”

Hence, in the short to medium term, miners could continue to serve as a major source of selling pressure on Bitcoin.

Based on data from CryptoQuant, the Miner Position Index (MPI) has surged significantly in the past few days.

Bitcoin Miner Position Index (30 day). Source: CryptoQuant

On Jan. 10, the MPI reached a level that is on par with July 2019, when BTC price quickly fell below $14,000. Ki Young Ju, the CEO of CryptoQuant, said:

“Miner Position Index looks enough to make a local top. They're selling $BTC. I'm going to punt a small short to scalp $BTC in this short-term bearish market. Since December last year, they had been selling $BTC, but the correction was tiny due to institutional buying power.”

Ki later noted that he closed the scalp short, emphasizing that the correction was short-lived.

It is possible that the buyer demand coming from the U.S. is overwhelming the selling pressure from miners. This theory is supported by the recent trend of Bitcoin price trading at a higher premium at Coinbase than other major exchanges like Binance.

What traders expect in the short term?

Some traders expect Bitcoin to see a larger pullback in the near term. Edward Morra, a cryptocurrency trader, said that a possible scenario is a slow correction to around $36,000.

Morra noted that the scenario of Bitcoin falling all the way down to $36,000 is unlikely, but it would be a “typical bull market thing.” He wrote:

“I think unlikely scenario but I see some similarity to last week Sunday-Monday transition. By the way, this is very bullish to set low of the week on Monday and then expand, typical bull market thing.”

Philip Swift, the creator of LookIntoBitcoin, said that while Bitcoin is unlikely to see a 30% pullback, the rate of appreciation could decline. This could lead to slower momentum for BTC, especially as it retests the $42,000 resistance level in the foreseeable future. He explained:

“A point of clarification, as there seems to be some misinterpretation. I don't think $BTC is about to crash +30%, I thought/think the rate of price appreciation may slow down in the near term.”

Another $84M deposit begs the question: Why are Bitcoin whales in Korea selling?

Bitcoin whales are depositing large amounts of Bitcoin into South Korean exchanges as BTC continues to rally.

Bitcoin (BTC) whales in South Korea have been selling heavily across major exchanges throughout the past week. Data shows that multiple $100 million deposits to Bithumb have been spotted in the last three days alone.

By volume, South Korea has a much smaller cryptocurrency exchange market compared to the United States. Yet, South Korea’s cryptocurrency exchanges have seen massive inflows that are comparable with other major markets.

Large inflows into exchanges typically indicate selling pressure from whales because high-net-worth investors do not keep their holdings on exchanges. Hence, when capital flows into a trading platform, it shows an intent to sell.

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

Return of the "kimchi" premium

After two $100 million deposits to Bithumb were spotted, Korbit saw a $90 million deposit on Jan. 9.

According to CryptoQuant Alerts, 2,098 BTC, worth $84 million, were deposited into Korbit at 11:42 am KST.

Due to the discrepancy between the daily volume of South korean exchanges and major U.S.-based or international exchanges, inflows that exceed $50 million are often considered unusually large deposits.

Data from CoinMarketCap shows that Korbit ranks 21st in the global market by daily volume, processing $44 million worth of trades daily.

Hence, a $84 million deposit on a single day is an abnormally big deposit given that the exchange trades around $44 million a day, per CoinMarketCap.

The most likely reason behind the continuous inflows into South Korean exchanges is arbitrage.

In December 2017, when Bitcoin first surpassed $20,000 in South Korea, the dominant cryptocurrency was trading about 20% higher at times, what became known as the "kimchi premium."

Korea premium index. Source: CryptoQuant

In recent weeks, Bitcoin has been trading around 5% higher on South Korean exchanges. This might have encouraged whales to arbitrage the premium, driving massive inflows.

However, arbitraging the premium in South Korea is not easy. South Korea has strict restrictions on capital leaving outside the country. Foreigners are also not allowed to trade on local cryptocurrency exchanges, which makes it all the more challenging.

For the arbitrage to work efficiently, whales outside of South Korea would have to supply BTC to local traders, and work as a team to pull it off.

Whales are applying immense pressure overall

On Jan. 8, Cointelegraph reported that “mega whales” sold large amounts of BTC when the Bitcoin price first surged past $40,000.

Even as Bitcoin dipped $40,000 to around $36,000, many major whales continued to sell aggressively, pushing the price down.

In the near term, the pattern of whales taking profit and new buyers from the U.S. accumulating Bitcoin should continue. But the biggest variable that could alter the market dynamic is the strength of the U.S. dollar, or namely, the USD strength index (DXY).

Analysts at Decentrader, a platform for cryptocurrency traders, said that the HODLing activity of Bitcoin is increasing, which could offset the thread of the rising dollar in the medium term. He said:

Philip Swift, Bitcoin trader and creator of Lookintobitcoin, meanwhile cautions that the market is reaching overheated levels.

MVRV Z-Score. Source: Twitter @PositiveCrypto

Although the sign of a market top above $40,000 is not necessarily here yet, it is nearing the peak. Swift said:

"We can see that when the z-score enters the red zone it signals a market top. We are not there yet but a few more parabolic days up for price and we will be. I am keeping a close eye on this."

Swift also explained further in comments to Cointelegraph that while the rally may be getting overheated, a large pullback is becoming unlikely. 

"I think a 30% pullback from here is pretty unlikely," he said. "I do think the rate we have gone up is getting to the point where btc may need to slow down soon though. Once bitcoin starts ranging then I think alts rip."

Brace for impact? After hitting $42K, Bitcoin price volatility may rise

Bitcoin whales are selling while buyers in the U.S. are accumulating, who will get the upper hand, and where will BTC’s price go next?

The price of Bitcoin (BTC) achieved a new all-time high above $42,000 on Jan. 8, surging by 9% in merely three hours. At the time, there was a high premium on Coinbase, which meant U.S. buyers drove up the market by aggressively accumulating BTC. But, there is continuous selling pressure coming from Asia, particularly from South Korea.

Bitcoin corrected sharply after rising to $42,000, declining by over 7% in about eight hours. The sell-off coincided with significant whale activity across major exchanges. Trading activity in the altcoin futures market also demonstrated a similar trend. For instance, on Jan. 9, a whale unloaded a big portion of Ether (ETH) longs on Bitfinex, taking profit for the first time since March 12.

Whales have been selling en masse since the start of 2021. As an example, when Bitcoin first surpassed $40,000, large whales began to sell BTC even as the price fell below $40,000. Within three hours, on Jan. 7, so-called “mega whales” on Binance sold off a total of four times, driving extreme volatility.

Where is Bitcoin headed next?

Currently, the Bitcoin market is essentially seeing a battle between whales taking profit on their positions and new buyers in the U.S. market accumulating BTC. As such, there has been consistent extreme volatility ever since Bitcoin surpassed $30,000. Due to the high inflow of capital into Bitcoin through Coinbase, the upside momentum of BTC would likely be sustained in the foreseeable future.

The key metrics to observe are Bitcoin outflows from Coinbase and stablecoin inflows into major exchanges. When high-net-worth investors purchase Bitcoin, they prefer to move the BTC out of centralized exchanges for security purposes. Hence, high Coinbase outflows would mean a heavy accumulation of BTC in the United States.

When stablecoin inflows are high, it suggests that sidelined capital is moving back into the Bitcoin market. Rather than cashing out to fiat currencies, such as the U.S. dollar, traders within the cryptocurrency exchange market, particularly derivatives traders, park their funds in stablecoins. Therefore, if capital stored in stablecoins begins to move back into cryptocurrencies, it typically suggests a bullish market structure.

Generally, the market sentiment around Bitcoin remains positive despite an upsurge throughout the past three months. Eric Wall, chief investment officer of Arcane Research, said in a tweet that Bitcoin has the potential to see a “very extreme peak” this time around. This would mean that even if Bitcoin could be overheated based on technical indicators in the near term, BTC could still have room for additional growth.

At the current price of around $40,000, the market capitalization of Bitcoin is valued at over $740 billion. Given gold’s valuation of $9 trillion, this would put BTC’s market cap at around 8.2% of gold. Bullish projections of Bitcoin, like the thesis of the Winklevoss twins, anticipate Bitcoin to overtake gold over the long term. Based on this assessment, some analysts say that Bitcoin reaching 10%–20% of gold’s market cap is realistic.

Wall noted that Bitcoin would likely peak when there is ostensibly a lot of “froth” in the market. If there is an unnaturally high level of retail excitement around Bitcoin, the probability of a temporary Bitcoin top would increase. However, Wall said that given the unprecedented level of institutional interest in Bitcoin, the next top could be much higher than many imagine:

“The reason is because our current macroeconomic climate is unprecedented — our economy is being flooded with money. On top of that, we’ve just witnessed an unbelievable level of endorsement from the financial elite in favor of Bitcoin. And we know this time that the price is being driven both by institutions and retail at the same time now.”

What are the key technical levels to watch?

According to researchers at Whalemap, a data analytics platform that tracks Bitcoin whales or high-net-worth investors, there are two key technical levels for Bitcoin in the near term. As long as BTC remains above $38,719 and $38,700, which are two major whale cluster areas, the researchers said that the bull trend of BTC remains intact.

Bitcoin whale clusters. Source: Whalemap.io

Whale clusters form when whales accumulate Bitcoin at a certain price point and do not move their holdings afterward. Clusters are theoretically ideal support areas because whales would look to accumulate more at levels they previously bought BTC at if the price of Bitcoin dips. The researchers noted: “Support at $39,719, invalidation below $38,700. Gap in supports between $39,719 and $32,180 so consolidating in the bear zone could bring us down to $32k.”

On Jan. 9, Bitcoin’s price fell to as low as $38,700, recovering strongly at the support level. This indicates that some whales are accumulating at this level, protecting it as a short-term support area to keep the BTC rally moving.

However, Raoul Pal, CEO of Real Vision Group, warned of the “New Year Head Fake.” Pal said that hedge funds begin to talk about various risk-on assets at the beginning of the year. Then, when many investors buy in, the market tends to correct by the end of the first quarter. If this head fake phenomenon coincides with a rising U.S. dollar, Pal said that he would be tempted to place S&P 500 puts. In the options market, puts are short contracts that allow investors to bet against an asset or an index.

Considering that Bitcoin and gold tend to move together, and a rising dollar could negatively affect both assets, a New Year head fake could cause corrections in both the Bitcoin and the gold markets. Whether this correction would be as brutal as the March crash remains uncertain, but given that BTC is overbought on higher time frames, like the weekly and monthly charts, the possibility of a deep correction exists nonetheless.

Bitcoin price volatility spikes as BTC whales sell each new high

Data suggest Bitcoin’s price drops at each new all-time high are the result of “mega whales” selling into liquidity.

Bitcoin price has re-established the $40,000 level as support but as bull push toward a new all-time high the possibility of another sharp sell-off looms.

According to analysts at Material Indicators, a crypto analytics company, mega-whales sold off steeply when Bitcoin hit $40,000 on Jan. 7. This led to a quick 10% drop to the $36,000 area over the next few hours.

The dip was quickly bought up, eventually pushing the price above $41,000 in the next 12 hours. However, BTC saw another large drop after setting another all-time high at $42,000, and at the time of writing the top-ranked digital asset is trading at $40,800. According to Material Indicators:

“So, it looks like mega-whales started selling after that dump at around 2am UTC, and continued selling on the spikes. My guess is they expected more downside. They did not really participate in the rally back up to 42k, which would further support that point.”

In the most recent pullback from $42,000 to $40,000, Fred explained that smaller whales, who hold $100,000 to $1 million, began to take profit. He noted:

“However, now, they have started buying again. Presumably to break the 42k resistance. Only this time, it seems to be the normal whales ($100k - $1M class) who started taking profit.”
Bitcoin heatmap. Source: Material Indicators

Considering that at times during the last week Bitcoin price has traded higher on Coinbase, it is clear that there is large buyer demand coming from the U.S.

This suggests that there is a battle between normal whales taking profit and new buyers in the U.S. market. The sharp rejections from each new all-time high also signals that whales may be aggressively taking profit as soon as Bitcoin hits a new record high

As such, it is important that the demand for Bitcoin from the U.S. is sustained in the near term. Otherwise, the high level of selling pressure from whales could cause BTC to see a correction in the foreseeable future.

Where could Bitcoin go from here?

Bitcoin currently has extremely strong technical momentum that continues to drive the price higher. For this reason, traders are reluctant to short it, but some have started to take profits.

In the short term, one concern for Bitcoin is the potential recovery of the U.S. dollar. A pseudonymous trader known as “Cantering Clark” pinpointed the rebound of the U.S. dollar and the decline of precious metals. He said:

“So the question is, with the $DXY finding a floor surprisingly, and metals responding by getting nuked, does $BTC hold well?”

The U.S. dollar index (DXY) is hovering at a support level on the monthly chart. Alternative stores of value, like Bitcoin and gold, are priced against the dollar. Hence, if the dollar begins to move upward, the risk of a BTC correction could intensify.