The data shows traders are still bullish on bitcoin price as futures premiums and other fundamentals show no signs of strain.

Bitcoin suddenly fell below $40,000 on Jan. 10, marking a 110-day low, and this is a wake-up call for leveraged traders. $1.9 billion worth of long futures contracts were liquidated this week, sending traders’ morale plummeting.

Bitcoin price chart | Source: Trade View

The cryptocurrency’s “Fear & Greed” index, which ranges from 0 “extreme fear” to 100 “greedy,” hit 10 in January 2020. “Fear & Greed” measures trader sentiment using historical volatility, market dynamics, trading volume, Bitcoin dominance, and social media. .

As usual, the panic turned out to be a buying opportunity as the total crypto market cap surged 13.5% in less than a week, from a low of $1.85 trillion to $2.1 trillion.

For now, investors seem to be focused on this week’s economic data, which showed US retail sales fell 1.9% mom in December 2021.

Investors have reason to worry about inflation and recession, a scenario in which inflation accelerates despite the lack of economic growth. However, even if this ultimately proves that Bitcoin’s digital scarcity is a positive trait, markets will still seek refuge with any deemed safe-haven asset. As a result, a wave of inflation and recession will potentially hurt cryptocurrencies.

Altcoins that have risen and fallen sharply over the week | Source: nomics

Bitcoin has been flat for the past seven days, lagging behind the altcoin market’s 7% rally.

Part of this unusual movement can be explained by Layer 1 decentralized application platforms showing positive performance powered by Fantom (FTM), Cardano (ADA), Near Protocol (NEAR), ) and Harmony (ONE).

Loopring (LRC), an open zkRollup protocol for decentralized exchanges (DEXs) on Ethereum, has posted its worst performance of the week. DEX trading volume using the protocol peaked at $30 million per day in early December 2021, but has now fallen to nearly $6 million. Meanwhile, Dfinity (ICP) and Chainlink (LINK) are correcting after rallies of 40% or more in the first 10 days of 2022.

Tether premium and futures premium are steadily increasing

OKEx Tether (USDT) premium or rebate measures the difference between peer-to-peer (P2P) transactions in China and the US dollar. Metrics above 100% show excessive demand for crypto investments. On the other hand, a 5% discount usually indicates strong sales activity.

OKEx USDT Peer Premium vs US Dollars | Source: OKEx

The Tether indicator bottomed at a 3% discount on Dec. 31, which is a slight but not alarming drop. However, the metric is down 2% over the past week, suggesting retailers are not panic selling in China.

To further demonstrate that the crypto market structure has been maintained, traders should analyze the CME bitcoin futures premium. This is an indicator that shows the difference between a longer-dated futures contract and the current spot price in conventional markets.

When this indicator fades or turns negative, this is an alarming sign. This situation is also known as backwardation and shows that bearish sentiment is in place.

2 Month Bitcoin Futures Premium on CME vs. BTC/USD price | Source: TradingView

These fixed monthly futures contracts typically trade at a premium to the spot price, indicating sellers are charging more money to hold payments longer. In healthy markets, futures should trade at a premium of 0.5% to 2%, a situation known as contango.

The indicator turned negative on Dec. 9 when Bitcoin was trading below $49,000, but it still managed to maintain a slightly positive number, signaling a lack of confidence to institutional investors despite the lack of a rebate structure.

Considering that the total crypto market cap is down 9.5% so far, the market structure is pretty well organized. Bitcoin futures premium on CME will be negative if demand for shorts is too great.

Unless these fundamentals change dramatically, there is not enough information available to support Bitcoin price predictions below $40,000.

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