First, the funding rate on the futures market remains high. The funding rate is a mechanism that stimulates the minority of the market.
For example, if there are fewer short sellers in the market, buyers will have to pay short sellers a fee every eight hours. If the funding rate is high, it means buyers are paying sellers.
Second, the US dollar index (DXY) is starting to recover, which could be a bearish sign for Bitcoin and gold.
What comes next after the fall and recovery of Bitcoin?
According to Julien Bittel, a multi-asset fund manager at Pictet Asset Management, the US dollar is “very oversold.”
The dollar has fallen continuously since the pandemic started in early 2020 and has struggled to compete with other reserve currencies such as the Japanese yen.
The election uncertainty and stimulus further led to the DXY’s underperformance in 2020.
Bittel said the dollar now appears oversold and could strengthen the dollar’s momentum in 2021. He wrote:
“The dollar looks very oversold. I still think a stronger dollar will be a major theme to watch out for in 2021. Speculators are back to near record short DXY as% of total OI. The current decline in DXY is very similar to that of 3/17/18. This analog would suggest there could be a base in late Q1 2021. “
The dollar’s positive outlook puts Bitcoin’s momentum at risk as alternative stores of value are priced against the dollar.
So if the dollar starts to rise, both gold and Bitcoin could see a potential downturn, especially after a strong quarter.
On top of the rising dollar, the high funding rate of the Bitcoin futures market is a short-term problem.
A high funding rate for futures is not necessarily bad in itself. But if the price of Bitcoin falls while the funding rate remains high, it could increase the chances of a correction.
The combination of the dollar’s momentum and the overheated derivatives market makes a downturn more likely in the near term.
Lack of stablecoin influx is another concern
Ki Young Ju, the CEO of CryptoQuant, said that there could be a “second dumping”, as seen on 11 January. He stated that miners are selling without an influx of stablecoin, which is a problematic trend.
The inflow of stable coins typically represents the demand of buyers of sidelined capital. If stablecoin deposits on exchanges increase, it indicates general bullish market sentiment. Ki wrote:
“Nothing has changed since yesterday. Miners are selling, no significant influx of #stablecoin, no outflow of #Coinbase and 15k $ BTC pouring into the exchanges since yesterday. We may have a second dump. “
In the near future, the ideal scenario for the bullish traders would be to wait for the funding rate to neutralize and the inflow of stable coins to increase.