Fri Fire: Gold & Oil Up, Bitcoin & Crypto Dive
Amidst a week of significant volatility in the cryptocurrency sphere, the Bitcoin price has been a focal point, especially following a dip below $43,200 today. After climbing to $44,533 on Tuesday, the price has since entered an ascending channel, touching a local low of $42,835 on Thursday.
This trend has sparked a critical debate: is this a sign of an impending major correction following Bitcoin’s 65% rise in the past seven weeks, or is it a temporary bear trap in a continuing bullish market? Adam Cochran, partner at CEHV, has offered an in-depth analysis of the current Bitcoin market situation.
Bitcoin Price Poised For Further Downside?
Via X, Cochran began by assessing the market’s reaction to the recent price dip, “I was trying to decide if we were at ‘euphoria’ yet and due a major correction versus a mild pullback. But on this pullback, too many people went from ‘wgmi’ to ‘take money off the table’. In real euphoria, people just yolo every dip. This looks healthy + bullish.”
This observation indicates that the market’s response to the price dip is not indicative of the ‘euphoria’ typically seen before a major market correction, suggesting a more stable and bullish sentiment. Further, Cochran delved into the intricacies of the futures market, noting the increase in Open Interest (OI) on the Bitcoin side and the decreased basis, signifying a move towards market equilibrium.
He elaborated “On the BTC side, OI has increased while the basis has decreased, meaning the market has come a bit more towards equilibrium on futures.” This is a significant indicator of the market’s health.
Cochran also examined the relationship between perpetual futures prices and spot prices. He remarked, “We’ve also got the perpetual futures price trading a bit above spot, which we’d expect, and it’s not overly optimistic – which is healthy.” This indicates a cautiously optimistic market, avoiding the extremes of pessimism or irrational exuberance.
In his analysis, the crypto analyst also emphasized the potential impact of Spot Exchange-Traded Funds (ETFs) on the market. He asserted, “Bitcoin is limited. Bitcoin futures are not. At the end of the day, 1 BTC > 1 BTC Perp.” This highlights the significance of the finite nature of Bitcoin compared to the more flexible futures market. The introduction of ETFs, which are required to buy spot Bitcoin, could significantly affect market liquidity and dynamics.
The Most Important Bit Is What’s Missing
Cochran claims that the pre-rally started with healthy buying between $16,000 to $18,000 support, then the rally got fueled by “bears being destroyed” and extended by refreshed spot buying, while earlier buyers did not distribute their coins.
“But the most important part is actually what’s missing,” according to Cochran, who added “ETF buyers haven’t started buying yet. Retail buyers haven’t started buying yet. BTC didn’t break below the $42k support. BTC, a nearly $1T asset, is up 157% on the year, and retail inflow hasn’t even started yet.”
These observations indicate that the Bitcoin rally has potentially much more fuel in the tank left. Cochran concluded:
Imagine this: Next year Boomers sit down with their financial planner. They look at their 60/40 portfolio with a 5 year performance of 5%. They’ve just read about Bitcoin up 157% on the year nearing ATHs. Why wouldn’t they diversify 1% into this new BTC ETF? […] My hunch is even at these levels, any spot buying will be deeply in the money this time next year.
In the short term, however, one thing is crucial: the BTC price must break out of the ascending trend channel in the lower time frames in order to trigger new upward momentum.
Featured image from iStock, chart from TradingView.com
