As Bitcoin (BTC) price tested the $17,580 low on Dec. 11, investors remained relatively calm despite some analysts issuing bearish estimates. Last week’s trading may have finished at the same level where it started, but the fundamentals for Bitcoin have become even stronger.
Each time Bitcoin makes a new high, investors expect some form of correction. Despite failing to break through the $24,000 resistance, the price quickly bounced from its sub- $22,000 dip on Dec. 21. This event might have given sellers some hope, but looking under the hood, there is not a single sign of weakness sign.
In the past week, Bitcoin dominance continued to gain as it climbed from 64.3% to 67.3%. This move was aided by the Dubai-based financial advisory firm deVere Group's $46,000 prediction for 2021. Moreover, the Chicago Mercantile Exchange (CME) surpassed $1.3 billion of futures contracts. This creates indisputable evidence of the growing institutional participation in BTC markets.
This news appears to have given further confidence to investors, causing Bitcoin to reach a new $24,300 all-time high on Dec. 20.
In the past week, Bitcoin outperformed the top-15 altcoins, which climbed 7.7% on average. More importantly, the volume from altcoins has been disappointing compared to Bitcoin's 50% increase. This indicator strengthens the recent dominance performance, as does BTC establishing $22,500 as a new support.
Institutional investors accumulate while Bitcoin price consolidates
Crypto fund manager Grayscale Investments also continued to aggressively add BTC to their portfolio which now contains $13.3 billion in Bitcoin.
Over the past week, 11,620 BTC were added, totaling 576,650 BTC. Therefore, it was another excellent week for Grayscale Bitcoin Trust. Similar excitement can be seen by analyzing the fund's premium over the effective BTC held by each share, which currently sits at 0.00095064 BTC.
As shown above, the premium increased from 18% to 40% in the past seven days. This extraordinary level can be partially explained by a temporary suspension of new shares being issued.
Albeit unusual, a similar move occurred six months ago. By halting the offer to institutional clients, any additional demand needs to be met by secondary sales, thus creating pressure for a larger premium.
Perpetual futures funding is holding steady
Perpetual contracts, also known as inverse swaps, have an embedded rate that is usually charged every eight hours. Funding rates ensure there are no exchange risk imbalances. Even though both buyers and sellers' open interest is matched at all times, the leverage can vary.
When buyers (longs) are the ones demanding more leverage, the funding rate turns positive. Therefore, the buyers will be the ones paying up the fees. This issue holds especially true during bull runs, when there is usually more demand for longs.
Sustainable rates above 2% per week translate to extreme optimism. This level is acceptable during market rallies but problematic if the BTC price is sideways or in a downtrend.
In situations like these, high leverage from buyers increases the likelihood of large liquidations when the price drops abruptly.
Take notice how, despite Bitcoin's weakness on Dec. 21, the weekly funding rate managed to avoid the negative territory. This data indicates that both short (sell) and long (buy) traders use roughly the same leverage.
This is a neutral reading, as both sides have powder left to increase their bets.
Social network activity peaked
Data from TheTie also shows that a recent BTC price increase occurred while tweets related to ‘Bitcoin’ reached the highest level seen since Dec. 2017. Despite the recent correction on the social activity indicator, the current level remains 10% higher than the previous month.
While a significant bump in Twitter activity does not necessarily equal vigorous retail buying it certainly helps to gather more attention as the cryptocurrency continues its uptrend.
Options put-to-call ratio
The best way to gauge overall market sentiment is to measure whether more activity is going through call (buy) options or put (sell) options. Generally speaking, call options are used for bullish strategies, whereas put options are for bearish ones.
A 0.70 put-to-call ratio indicates that put options open interest lag the more bullish calls by 30% and is therefore bullish.
In contrast, a 1.20 indicator favors put options by 20%, which can be deemed bearish. One thing to note is that the metric aggregates the entire BTC options market, including all calendar months.
As Bitcoin price broke $20,000, investors rushed to seek downside protection. As a result, the put-to-call ratio peaked at 1.08 on Dec. 19. The very unusual level favoring the more neutral-to-bearish strategies reverted soon after, as the indicator returned to 0.60.
This shows that investors optimism was not harmed by the 10% price correction that followed the $24,200 all-time high.
Bitcoin is holding $22,500 while traders remain optimistic
Overall, each of the indicators discussed have quickly returned to a neutral-to-bullish range and this relatively positive given that the market recently tested a $21,910 low.
As BTC holds above $22,500, investors are quickly regaining their confidence whilend the consistent bounces back from each dip are a positive sign.
The views and opinions expressed here 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.