Crypto Derivatives Data Point to Improving Investor Sentiment and Possible Trend Reversal

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This week, the total crypto market cap rose 10% to $1.68 trillion, a 25% recovery from the January 24 low. It’s too early to suggest the market has bottomed, but two key indicators – the Tether/CNY premium and the CME futures basis – have recently tipped higher, signaling positive investor sentiment is supporting the recovery. current prices.

Total crypto market capitalization excluding stablecoins, in billion USD. Source: Trading View

Traders should not assume that the downtrend has ended by simply looking at the price charts. For example, between Dec. 13 and Dec. 27, the sector’s total market capitalization rebounded from a low of $1.9 trillion to $2.33 trillion. Yet the 22.9% rally was completely erased in nine days as crypto markets crashed on January 5.

Bearish data suggests the Fed has less room for rate hikes

Even with the current trend change, bears have reason to believe that the 3-month descending channel formation has not been broken. For example, the February 4 rally could have reflected recent negative macro data, including the 2% annual growth in Eurozone retail sales in December, which was well below market expectations of 5.1 %.

Independent market analyst Lyn Alden recently suggested that the US Federal Reserve may postpone interest rate hikes after the release of disappointing US jobs data on February 2. The ADP Research Institute also showed a contraction of 301,000 private sector jobs in December, which is the worst figure since March 2020.

Whatever the reason Bitcoin (BTC) and Ether (ETH) gained 10% on Friday, the Tether (USDT) premium at OKX hit its highest level in four months. The indicator compares peer-to-peer (P2P) transactions based in China and the official currency of the US dollar.

Peer-to-peer CNY/USDT against CNY/USD. Source: OKX

Excessive demand for cryptocurrency tends to pressure the indicator above fair value, or 100%. On the other hand, bear markets tend to flood the Tether market, leading to a discount of 4% or more. Consequently, Friday’s pump had a significant impact on China-focused crypto markets.

CME futures traders are no longer bearish

To further prove that the structure of the crypto market has improved, traders should analyze the CME Bitcoin futures premium. The measure compares longer-term futures and the traditional spot market price.

It is an alarming red flag whenever this indicator fades or turns negative (feedback) as it indicates that bearish sentiment is present.

These fixed-time contracts typically trade at a slight premium, indicating that sellers are asking for more money to delay settlement longer. As a result, 1-month futures should trade at an annualized premium of 0.5% to 1% in healthy markets, a situation known as contango.

One-month BTC CME futures contract premium versus Coinbase/USD. Source: Trading View

The chart above shows how the indicator entered reverse levels on January 4 as Bitcoin broke below $46,000 and Friday’s move marks sentiment’s first trend reversal in a month.

The data shows that institutional traders remain below the “neutral” line as measured by the futures basis, but at least reject the formation of a bearish market structure.

While the CNY/Tether premium might have shown a change in trend, the CME premium reminds us that there is a lot of mistrust in Bitcoin’s ability to function as an inflationary hedge. Still, lack of enthusiasm from CME traders could be just what BTC needs to further fuel the rally if resistance at $42,000 is broken over the weekend.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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