Cryptocurrency derivatives data signals a possible trend reversal

This week, the total crypto market cap surged from $1.814 trillion to $1.925 trillion, a sharp rebound from the Jan. 24 bottom of $1.695 trillion. However, it is still too early to say that the market has bottomed, but the two main indicators, the CNY/USDT premium and the CME futures contract, have turned bullish recently, signaling positive investor sentiment.

Total Cryptocurrency Market Cap | Source: TradingView

Traders should not assume that a downtrend is over simply by looking at the price chart. For example, the industry’s total market cap rose from a low of $1.9 trillion to $2.33 trillion on December 13 through December 27. However, this 22.9% rally was completely wiped out within nine days of the market crash on Jan. 5th.

Bearish data shows little chance of Fed rate hike

Even if the current trend changes, bears have reason to believe that the 3-month descending channel pattern has not yet been broken. For example, the Feb. 4 rally could be attributed to recent negative macroeconomic data, including retail sales in the Eurozone, which grew 2% yoy in December, much less than expected.5.1% of the market.

Descending channel on total market cap chart (excluding stablecoins) | Source: Trade View

Independent market analyst Lyn Alden recently hinted that the US Federal Reserve (Fed) could postpone interest rate hikes after the country’s disappointing payrolls data was released on February 2nd. The ADP Research Institute also saw a 301,000 decline in private sector jobs in December, the worst number since March 2020.

Regardless of the reason for the 10% surge in bitcoin and ETH prices on Friday, USDT spread has hit a 4-month high on OKX. This indicator compares peer-to-peer (P2P) transactions in China and the official currency, the US dollar.

Difference CNY/USDT vs. CNY/USD | Source: OKX

Excessive demand for cryptocurrencies tends to push the indicator above its fair value (100%). Bear markets, on the other hand, tend to flood the USDT market, resulting in a discount of 4% or more. As a result, Friday’s pump had a significant impact on crypto markets in China.

CME futures traders are no longer bearish

To further demonstrate the improved market structure, traders should analyze the CME bitcoin futures premium. This index compares longer-dated futures contracts and traditional spot market prices.

When the indicator turns negative (selloff), it is an alarming warning sign as it shows that bearish sentiment is in place.

These fixed-schedule contracts typically trade at a small premium, indicating sellers are asking for more money to delay payments longer. As a result, 1-month futures in healthy markets typically trade at an annual premium of 0.5% to 1%, a situation known as deferral.

CME 1-Month BTC Contract Difference vs Coinbase/USD | Source: TradingView

The chart above shows how the indicator entered selloff compensation levels on Jan. 4 as Bitcoin fell below $46,000 and Friday’s move marked the first psychological reversal in a month.

According to the data, institutional traders are still below the “neutral” level as measured by the futures premium, but have at least refused to form a bear market structure.

While the CNY/USDT arbitrage could indicate a trend reversal, the CME premium reminds us that many doubt Bitcoin’s ability to act as an inflation hedge. However, CME traders’ apathy could be just what BTC needs to fuel the rally if the $42,000 resistance level is broken.

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