BTC trades above its 10-hour and 50-hour averages on the hourly chart, a bullish signal for market technicians.
Bitcoin is in “uncharted territory,” said Hunain Naseer, senior editor at OKEx Insights, after its price surged to a new all-time high above $52,000, only a day after it passed the key psychological threshold of $50,000.
Price volatility remains high when compared with major macro assets including the Standard & Poor’s 500 Index of stocks, gold and bonds.
“We can expect some consolidation between $50,000 and $52,000, with a possible retest of the $49,000 support,” Naseer added.
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One bullish signal: a large amount of stablecoin reserves on cryptocurrency exchanges, according to data from South Korea-based crypto data firm CryptoQuant. That could show traders moving stablecoins into place so they can buy quickly if the price is right.
“So many stablecoins in exchanges” compared with bitcoin held on exchanges, Ki Young Ju, CEO of CryptoQuant, told CoinDesk, pointing out that selling pressure is relatively low.
In the derivatives market, bitcoin futures on the Chicago-based CME logged a record high single-day trading volume and total interest on Tuesday, according to data from blockchain analytics site Skew. The elevated activity could be an indicator of rising bitcoin demand from institutional investors.
Institutional interest in bitcoin is also reflected in another market indicator called the Coinbase premium, a measurement of the price difference between Coinbase Pro’s BTC/USD pair and Binance’s BTC/USDT pair, said CryptoQuant’s Ki. The number flipped positive on Wednesday.
“Coinbase [U.S. dollar] whales are like gatekeepers” of the bull market, Ki said of investors with large holdings.
Ether consolidates, institutional interest in futures rises
Ether (ETH), the second-largest cryptocurrency by market capitalization, was up Wednesday, trading around $1,828.15 and climbing 4.45% in 24 hours as of 21:00 UTC (4:00 p.m. ET).
On the technical side, ether is in a consolidation phase after losing short-term momentum, according to Katie Stockton, a technical analyst for Fairlead Strategies.
“I view the consolidation as healthy within the context of its steep uptrend,” Stockton said. “The 20-day moving average at $1,556 is a gauge of initial support.”
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Ether’s correlation with bitcoin has been flat this month at around 0.68, after it moved down to as low as 0.55 in January.
“As long as bitcoin stays above $49,000 we can expect a rally in the altcoins, including ether,” OKEx Insights’ Naseer said. “But that will only happen when bitcoin’s volatility drops a little.”
At the same time, institutional interest in ether futures has grown significantly, according to data provided by blockchain analytics firm Glassnode.
“One week after ether futures launched on CME, daily trading volume reached a total of $75.8 million yesterday – almost doubling Friday’s volume of $40 million,” Glassnode wrote in a tweet Wednesday. “Meanwhile, open interest has increased to $62 million.”
The launch of the CME’s new ether futures contract last week might be one reason why ether’s price has underperformed, said trader and analyst Alex Kruger.
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“Ether is a high beta asset to bitcoin, and it is supposed to move in line,” Kruger said. “Sometimes its own set of technical and or fundamental drivers kick in and make price trajectories or performance differences.”
Digital assets on the CoinDesk 20 are mostly in green Wednesday. Notable winners as of 21:00 UTC (4:00 p.m. ET):
Oil was up 0.37%. Price per barrel of West Texas Intermediate crude: $61.22.
Gold was in the red 1.09% and at $1775.03 as of press time.
The 10-year U.S. Treasury bond yield fell Wednesday dipping to 1.286%.
Bitcoin’s price saw a retracement of its earlier gains on Tuesday, but the market expects that it will soon resume its long-term bullish trend and push fresh new all-time highs.
For a brief moment during early New York trading hours, bitcoin broke above $50,000 for the first time ever. However, at press time bitcoin’s price was trading at $48,249.23, down 0.29% in the past 24 hours, according to CoinDesk’s BPI.
“It’s an impressive milestone for bitcoin [reaching above $50,000] that the crypto community has been waiting for,” Alessandro Andreotti, bitcoin over-the-counter broker, told CoinDesk. “In my opinion we are going to keep reaching fresh new highs soon.”
The pullback after the record high price at $50,584.85 will not be long-lasting, according to Andreotti.
That is a sentiment echoed by analysts and traders, who note that significant amounts of liquidity flowing into the crypto market as a whole has been the underlying driver of the rally over the past few days.
The market opened last week with the news that Elon Musk’s Tesla purchased $1.5 billion worth of bitcoin as part of the company’s balance sheet strategy. Since then, bitcoin’s price has been able to hold onto those gains, despite a small-scale price retreat like the one that happened on Feb. 14.
On the retail side, the derivatives market has been on the rise.
In particular, bitcoin’s March futures on the retail-focused platforms have an annualized premium rate averaging at 44.16% at the moment. That outpaces those on the institution-driven Chicago Mercantile Exchange, which averaged at 24.39%, noted Arcane Research’s newsletter dated Feb. 16. Higher premiums indicate more demand on a particular platform.
“Retail traders want that upside exposure and are pricing the futures that expire in March at a premium of almost 5% to the spot price,” the newsletter said.
The lunar Chinese New Year this year is on Feb. 12, right around the corner. But unlike in previous years, some analysts and traders say the “Chinese New Year Dump,” a belief bitcoin’s (BTC) price would drop around the holiday period, will not take place this year. Why? The impact of retail traders in China has been reduced.
Some argue the “Chinese New Year dump” will not happen this year because institutional investors in the U.S. and Europe have been the main drivers of the current bull run. That is in contrast to 2017’s bull market, which was heavily powered by retail investors in Asia.
Meanwhile, many on Chinese-language social media platforms are discussing whether the current bitcoin bull market would be forced to pause during the holiday season.
Concern about the Chinese New Year’s effect is compounded by data showing at least a handful of miners in China sold their bitcoin in January. Some speculate the selling was triggered by bearish sentiment ahead of the new year.
Cash Is King, Especially During Holiday Season
“Chinese traders tend to withdraw their crypto assets and cash out,” Alex Zuo, vice president of China-based crypto wallet Cobo, told CoinDesk. “It is just like how people in the U.S. would take profit from stock holdings before Christmas.”
“There’s a decades-old tradition of giving out money, or ‘red packets,’ to family and friends and special people of interest [in China] during Chinese new year,” explained Felix Wang, managing director and partner of investment research firm Hedgeye Risk’s China business. “They need cash so they need to liquidate some of their financial holdings, and that could lead to a little bit of pressure in some of the financial markets.”
Liquidity is another concern. Most businesses are closed during the week of the Chinese New Year, including over-the-counter service and crypto trading desks because people in the Greater China region take at least five days off to reunite with their families and celebrate the holiday.
Data compiled by CoinDesk Research shows the trading volumes on Binance, Huobi and OKEx – the most popular crypto exchanges catering to customers in China – were down during the Chinese New Year period in the past two years. The same decreased trading volumes also appeared during the month October each year, when the Golden Holiday in China takes place.
Decreased liquidity and increased withdrawal activities exposed the market to higher price volatility risks. Trading data from TradingView on Binance’s bitcoin/USDT (tether) pair shows that in each of the past three years, bitcoin’s price went down before the Chinese New Year.
By examining the 14-day price movement up to the day of Chinese New Year over the past three years, per CoinDesk’s BPI data, bitcoin’s price fell as people started taking days off to prepare for the holiday. In 2018, bitcoin’s price dropped to $5,947.40, down 37.2% from a high point at $9,471.46 during the 14-day period. In 2019, for the same period, bitcoin’s price fell to $3,346.14, down 8.3% from an earlier high at $3,648.50. For 2020, the drop was 10.5%, from $9,181.97 to $8,220.87.
Why 2021 might be different
As fate would have it, the year of 2021 will be the year of the ox on the Chinese lunar calendar, a bullish omen. While some may have sold their bitcoin, a large number of traders and investors in China, betting on a long-lasting positive market trend, appear to be holding their BTC into the new year.
Cynthia Wu, head of business development and sales at Hong Kong-based crypto trading service firm Matrixport, told CoinDesk she has not noticed any significant uptick in bitcoin selling from her company’s miner clients, other than a minor increase as the holidays approach.
Mining companies “need to pay annual bonuses to their employees” around Chinese New Year, Wu said. “It is just simply a seasonal behavior.”
Lei Tong, managing director of financial services at Hong Kong-based crypto lender Babel, told CoinDesk the company has been paid back by few China mining companies, an indication these miners have not sold a large amount of their bitcoin holdings yet. Babel allows bitcoin mining firms to use their machines as loan collateral, as CoinDesk reported previously.
At crypto exchange OKEx, Robbie Liu, market analyst at OKEx’s research arm OKEx Insights, told CoinDesk there have been no “unusual fluctuations” in the exchange’s USDT/Chinese yuan rate recently, and there have not been any liquidity problems this year so far.
As of press time, Binance and Huobi have not responded to CoinDesk’s requests for comments.
“This year’s market has been very different from the past years’ and we are seeing very limited impact from [Chinese] retail traders’ behaviors” such as cashing out, mining pool F2Pool’s co-founder, Shixing “Discus Fish” Mao, told CoinDesk. “The current market is driven by institutional money and it moves with the emotions of these Western institutions. We cannot simply come to any conclusions on [bitcoin’s] price’s trend based on retailers’ behaviors.”
An added factor: China’s crackdown on OTC desks
China’s crackdown on the over-the-counter (OTC) service is another potential reason fewer people are cashing out ahead of New Year’s, said people who are familiar with the matter.
As CoinDesk reported previously, Chinese crypto investors using OTC merchants have faced challenges liquidating their crypto holdings for cash because Chinese police have been freezing OTC-related bank accounts and cards amid the Chinese government’s crackdown on money laundering via cryptocurrencies.
Unregulated digital currency outflows, worth a total of $17.5 billion in 2020, were up 51% from 2019, according to an anti-money laundering report published on Feb. 5 by China-based blockchain analysis firm PeckShield.
A representative from PeckShield told CoinDesk that some crypto users on major crypto exchanges could have found their bank accounts frozen because their OTC transactions may have accidentally participated in money laundering activities without realizing it.
“These accounts were ‘contaminated’ and, therefore, they were eventually temporarily frozen by the Chinese authorities,” the representative said.
The crackdown on OTC-related money laundering activities and so-called “card freeze” action have continued into 2021, according to PeckShield. China’s central bank and the State Administration of Foreign Exchange issued a new notice recently to further guide banks on how to operate their cross-border businesses, tightening the clampdown on money laundering and terrorist financing.
Notebly, at least one key Huobi executive is still in custody in China due to investigations related to Huobi’s OTC trading business.
“It was so easy to sell your cryptocurrencies via OTC desks and change them to Chinese yuan immediately,” said a source to CoinDesk, speaking on the condition of anonymity because of the sensitivity of the subject. “It’s highly likely to have your bank accounts frozen this year when the transactions involve those OTC merchants.”
COVID-19 remains a wild card
Even though the coronavirus pandemic is being treated as if it were well under control in China compared with most Western countries, a new number of cases in the past month has led the Chinese government to put more restrictions on traveling around the holiday time in the country.
Some say the uncertainty around the COVID-19 restrictions during the holiday season could have an impact on the crypto market.
Hedgeye’s Wang, whose research work concentrates on the Chinese equities markets, sees new and strong retail interest in Chinese financial market since December due to an eagerness to invest in China and a “flurry” of IPOs from Chinese companies.
Data from a December report by the China Securities Depository and Clearing Corporation shows there are more than 1.6 million newly registered individual stock investors in China in December alone, nearly double the number of the previous year.
Because people cannot travel and the stock market is closed during the holiday week, according to Wang, there could be some negative impact on the crypto market.
Wang notes an that stock market prices Chinese mainland-based stock exchanges have been found to move in the opposite direction of Macau’s gambling revenues and visitation.
“Sometimes there’s an inverse correlation [between stock price and Macau’s casino business],” Wang said. “Because if you can’t bet on the stock market, you go gamble your money in casinos.”
One possible sign of things to come may have been what just happened in the U.S., where retail stock traders rushed to crypto when they were frustrated by the restrictions on their stock buying on online platforms such as Robinhood.
Whether that means more people in China may turn to crypto trading during the holiday season remains unclear.