Investors fear there could be a reduction in the Fed’s bond buyback program since it would affect Bitcoin. A cancelation of USD 300 million worth of long leverage contracts seems irrelevant compared to the decline on December 3rd.
The community might remember December 13th as the day when the value of Bitcoin (BTC) lost the support at the USD 47,000 mark. That date might also remind them the prices of altcoins dropped as much as 25% in a matter of moments.
When that occurred, analysts related the 8.5% correction of Bitcoin to the announcement of the Federal Open Market Committee (FOMC) meeting.
The Federal Reserve could begin tapering, which frightens investors since there could be a reduction in their bond buyback program. Logically speaking, a revision of the current monetary policy would negatively affect the riskiest assets, among which is Bitcoin.
There is no way to prove that hypothesis, but Bitcoin had accumulated a 67% profit this year until December 12th. Therefore, investors thought it made sense to withdraw those gains amid market uncertainties, leading to the current correction in the price.
The price of Bitcoin dropped by 8.2% over the past week but outperformed the broader altcoin market. In contrast to the last 50 days, the market share of the pioneering cryptocurrency went from 47.5% to 42%. Probably, investors decided to flee to Bitcoin because it is relatively less risky than altcoins.
The Premium of Tether Bottoms out at 4%
Tether (USDT) premium measures the difference between China-based P2P transactions and the official currency in US dollars. While figures above 100% indicate excessive demand for investment in cryptocurrencies, a 5% discount is usually a sign of high sales activity.
On December 13th, the Tether indicator bottomed out at 96%, slightly bearish. However, it is not alarming for a drop of 10% in the total cryptocurrency market capitalization. That metric has not exceeded 100% for over two months, a sign of a lack of enthusiasm among China-based traders.
Total sell-offs in 24 hours reached USD 400 million, demonstrating that the price drop only slightly affected investor sentiment.
Insufficient margin caused the forcible cancelation of only USD 300 million worth of long leverage contracts. That figure seems irrelevant, compared to the decline on December 3rd, when there was a closure of positions of USD 2.1 billion worth of leveraged buyers.
At the Moment, Bitcoin Bears Do Not Make Excessive Demand
Traders should look at perpetual futures to prove the sharp price drop did not affect the cryptocurrency market structure. Those contracts have a financing fee and usually charge a fee every eight hours to balance the risk of the exchange.
According to a positive finance rate, longs (buyers) demand higher leverage. However, when shorts (sellers) request it, the finance rate turns negative.
Most cryptocurrencies suffered significant losses on December 13th, so the overall market structure held up well. If shorts had bet on a drop in the price of Bitcoin below USD 46,000, perpetual 8-hour futures funding would have fallen below 0.05%.
Tether is trading at a 4% discount in Chinese markets, and there is USD 300 million worth of long contract settlements. Requesting USD 42,000 or less for Bitcoin will not make sense unless those fundamentals change significantly.
By Alexander Salazar
