As Bitcoin nears $25K, questions about rally’s sustainability remain

It’s no secret that the global economy has continued to weaken over the past year. By this point, on January 19, the United States government had reached its “debt ceiling”, that is, the total amount of money the US Treasury could borrow to fund its current federal operations, leading to new fears that more financial trouble and an economic slowdown could be incoming.

Similarly, on the other side of the Atlantic, the United Kingdom is also struggling. This is evidenced by the fact that in 2022, 22,109 cases of company insolvency were registered. 57% surge compared to the previous year and is the highest since 2009. Moreover, the International Monetary Fund recently published report assuming the United Kingdom will be the only G-7 country to face a recession this year.

However, amid all this devastation, the crypto market seems to have picked up a bit over the last month. In January, the total capitalization of this sector surge from $828 billion to about $1.1 trillion, an increase of nearly 32%. Focusing on Bitcoin (BTC) in particular, the cryptocurrency surged to $24,000 on January 30 after seemingly stagnating in the $16,500 range during the better part of November and December.

In fact, the share of assets in total market capitalization recently rose to 44.82%, the highest since last June. As a quick fix, this number usually rises so dramatically only when investors start limiting their participation in altcoins and putting their capital back into BTC.

Is $25,000 the next stop for Bitcoin?

After successfully defending the $22,500 price target since January 20, Bitcoin is currently on a 30-day uptrend. profit ratio around 40%. This surge was mirrored by similar surges in the stock market, which recently surged after China eased its COVID-19 restrictions after three long years of strict pandemic control.

30 day bitcoin price chart. Source: CoinGecko

Additionally, according to data provided by financial firm Matrixport, U.S. institutional investors now account for 85% of all recent bitcoin hoarding activity, suggesting that major players are not ready to abandon the digital asset market. So, to get a better idea of ​​where the industry might be heading in the near future, Cryptooshala turned to Timothy T. Shan, COO of Avalanche-based decentralized exchange Dexalot. In his opinion:

“I think the recent bitcoin rally came as a pleasant surprise given all the negative news in the industry that has yet to be fully played out. However, I don’t think the current rally is sustainable and users should expect more volatility.”

In something similar, Frederic Fernandez, co-founder of the DeFi trading app DEXTools, told Cryptooshala that the new year could be bullish for the crypto market if and only if the global economy can achieve some kind of recovery. This is because a large-scale trend reversal can increase demand for alternative investments and increase liquidity in the market.

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“The market could remain bearish if economic uncertainty increases as restrictive regulations could be put in place. However, if bitcoin hits $25,000, it could mean increased trust and acceptance of cryptocurrencies, leading to increased investment and widespread adoption,” he added.

Key Market Indicators

According to Luuk Strayers, commercial director of bitcoin and ethereum (ETH) options exchange Deribit, the cryptocurrency market is gradually returning to more favorable pastures. To back up that claim, he told Cryptooshala that the market is once again witnessing “contango,” a situation where an asset’s futures price is higher than its spot price. In layman’s terms, contango is usually seen when the price of a particular asset is expected to rise over time.

He said that the 25-delta put skewness of BTC has gone from over 30% to below zero, which is a bullish indicator. The above metric allows analysts to predict the movement of an asset’s price, as well as evaluate future fluctuations (volatility) based on certain predictive factors. “A drop in the 1-month skew indicates that short-term out-of-the-money calls are becoming more expensive compared to out-of-the-money puts, which is a bullish signal,” Stryers said.

He also highlighted that open interest in Bitcoin and Ethereum options is on the rise again, which is a positive sign, especially considering that much of that momentum was lost after it expired late last year.

Bitcoin options open interest data from February 2022. Source: Deribit

Not only that, Stryers noted that the put-call ratio (PCR) in the options market hit a local bottom at the end of last month, which suggests that investors may warm up again to the digital asset industry. PCR is an indicator that is commonly used to determine the mood in the options market.

Market Sentiment Analysis

In the last week of January alone, the digital asset investment products available on the market showed accumulated capital. inflow $117 million, the largest such amount in the past 180 days. Investors invested mainly in BTC-related offerings, which accounted for $116 million of the above figure.

In addition, the volume of digital investment products continues to grow, approaching $1.3 billion as of January 30, up 17% from its year-to-date value. However, Short-Bitcoin products have registered $4.4 million in cash inflows, which is not a good sign for investor sentiment. according to Coishares researchers.

For the third month in a row, money has been withdrawn from multi-asset investment instruments, and this outflow amounted to $6.4 million. According to Coinshares, this suggests that more investors are starting to move towards proven crypto assets.

Finally, the Crypto Fear and Greed Index, a tool that helps investors assess movements and sentiment in the crypto market, is currently 60. This figure represents “greed,” meaning people are willing to buy digital assets because they believe there may be more bullishness in the near future.

What lies ahead for the market?

From a macroeconomic standpoint, Shang believes the Fed is close to meeting its ultimate interest rate target—a neutral interest rate at which prices are stable and full employment is achieved. is currently just over 5%. In his opinion, the Fed will keep this figure for a year, while noting that any impending recession will be very mild and should not affect the cryptocurrency market too much.

He also noted that strict rules are likely to be introduced in the near future, which, if done correctly, can greatly help the market. “The industry can only grow exponentially with good regulations as they will open the doors to mass adoption over the next 10 plus years,” Shan said.

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Finally, the hard sell-off, as well as various cases of fraud, over-leveraging, and poor control and management over the past year, in his opinion, was a good reset for the crypto economy. This is because they can serve as a lesson for the industry, allowing participants to act responsibly and ensuring the sustainability of the industry.

As such, as we head into a future driven by growing economic uncertainty, it will be interesting to see how the landscape of the digital currency market continues to evolve, especially with Bitcoin and other major cryptocurrencies currently making a bit of a comeback.

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