Will It Be the ‘Pause That Refreshes’ for Bitcoin, Crypto?

The King of Crypto’s dip below $50,000 had many new market participants nervous the last couple of days, but it was largely a function of traditional markets’ reaction to the Biden administration’s plan to raise tax rates on capital gains.

•  Bitcoin (BTC, Tech/Adoption Grade “A-”), recovering from a weekend slide, has gained $7,000 in value in one daily candle.

•  Ethereum (ETH, Tech/Adoption Grade “A-”), following its 11% weekly gain, is showing it’s a force to be reckoned with for the long term, as altcoins generally continue to hold up well.

•  The fundamental case for crypto continues to improve, with institutional adoption and mainstream use both spreading.

For those who are still fearful, let’s enhance the perspective. BTC retraced 31% in January (over 19 days), 27% in February (seven days) and 19% in March (12 days). 

It’s retraced 27% in April, but it didn’t even visit the $44,000 to $45,000 level that many top traders expected. There is still a possibility it will go there. But, no, this level is by no means bearish. 

Have a look at the daily chart, where you can see how much BTC retraced each month this year — before making new highs:

Why is the $44,000 to $45,000 level important? That’s where the 21-day exponential moving average (the pink line) sits on the weekly chart:

If we zoom out on the same weekly chart, we can see that the 21-day exponential moving average has been a consistently accurate indicator of bullish versus bearish BTC seasons:

Going to this level ($44,000 to $45,000) and bouncing from there would be bullish for Bitcoin. Such price action would indicate the current long-term trend is still intact. 

Now, here’s the thing: Funding rates cooled down before we even reached that level. Bullish news followed, coupled with heavy buying around $47,000, and the BTC price jumped to $54,000.

Why are funding rates important? Why do they correlate with Bitcoin’s price?

Funding rates represent trader sentiment via positions they bet on in the perpetual swaps market. Positive funding rates imply that many traders are bullish; long traders pay funding to short traders.

Negative funding rates imply many traders are bearish; short traders pay funding to long traders.

If funding is very high (greater than 0.1%), it means the market is disproportionately long (bullish).

Why are high funding rates unsustainable in the long run and need to reset from time to time? While 0.1% may not sound like much, this sum is paid by longs to shorts every eight hours, which works out to about 109% on an annualized basis.

Yeah, you probably won’t keep such an expensive long for so long, but you get the message.

The Fear & Greed Index shows that investors finally became fearful. The fear has made them open more short positions on BTC. This, in turn, cooled down funding rates, which encouraged today’s bounce.

That’s part of the technical picture. It’s important to note that Bitcoin and the broader cryptocurrency market’s fundamentals continue to strengthen as well.

JPMorgan Chase & Co. (NYSE: JPM) has announced that it will launch a Bitcoin fund and will allow clients to invest in BTC. That’s huge news, as JPMorgan is the largest bank in the U.S. — not to mention the fact that CEO Jamie Dimon is one of the most vocal crypto skeptics among old-school Wall Street heads.

On top of that, PayPal Holdings, Inc. (Nasdaq: PYPL) CEO Dan Schulman has said that the demand for cryptocurrency on his company’s platform is much stronger than expected, exceeding management expectations “multiple-fold.”

And, to relieve some of the recent FUD (fear, uncertainty and doubt), the head of Turkey’s central bank has denied that a total crypto ban is ahead.

Notable News, Notes and Tweets

• Jamie Dimon now has an interest in Bitcoin’s price going up.

• “I will be converting my entire 2021 NFL salary to Bitcoin,” says Kansas City Chiefs tight end Sean Culkin.

• BULLISH: $152 million of CAKE token has been burned (taken out of circulation forever), meaning that the supply has been significantly reduced, and the supply will continue to decrease during future burn events.

What’s Next

The fundamental narrative for Bitcoin has not changed. In fact, it’s even stronger than it was a few weeks ago due to increasing adoption by businesses and mainstream users.

Indeed, the bull run is still intact. As long as BTC holds its 21-day moving average on the weekly chart, we should consider ups and downs business as usual.

Best,

Marija Matic