An uncomfortable calm seems to be enveloping the Bitcoin market as the crypto king has plunged nearly 7% for over a week the day after trading the range. Recent poor performance has caused Bitcoin’s dominance rate to drop to 39.46% – most recently 3 years ago in 2018.
The unusually weak trading and consolidation days since the end of the year have tipped market sentiment further down. So is this the ideal time to “buy the dip” or start a bear market as BTC drifts back into the $ 43,000 region?
After the options expired in December, Open Interest (OI) fell to the third strongest in the history of the BTC options market (nearly $ 5.85 billion), with 47.8% OI expiring. The futures and options markets are currently relatively quiet with low volumes due to the consolidation of spot prices.
However, with the excitement of the New Year, the prediction of Bitcoin’s return to heaven has been and will be rekindled.
Trading volume of options | The source: Crookedness
With open interest returning to levels last seen the third week of November when prices neared an all-time high of $ 69,000, many expect institutional traders to return.
One factor that needs to be strengthened, however, is the funding rate. Unlike in November, the current funding rate is mostly neutral, which makes the market more volatile.
With the open interest of perpetual Bitcoin contracts beating November highs and the funding rate looking neutral, traders appear to be returning to leverage. In addition, with high volatility and consolidating prices, the market looks heated and a short squeeze scenario is more likely. However, long positions could be at risk if the price continues to decline.
Source: Arcane Research
Bear Market or Dip Buy Opportunity?
At the time of this writing, the MVRV indicator for short term holders was dropping below 1. A similar trend last occurred in May when the mini bear market phase began.
Short-term MVRV holder | Source: Glassnode
For Short Term Holders (STH), the above metric shows how dangerous it is now compared to past bearish periods. The declining periods in 2018, 2019, and mid-2021 have all put STH in constant danger, with MVRV-STH values at 1 acting as resistance.
Glassnode data shows the $ 51,400 psychological level will be important to seeing new buyers “get their money back”. The TUSD reserve tells us that buying sentiment is currently dominating selling sentiment.
So it seems that although on-chain indicators are sloping up and heavily leveraged derivatives markets are causing Bitcoin to move, which direction is still controversial.
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