Key Metrics Show Bitcoin Ready to Take Back the $40,000

The cryptocurrency market has had a volatile week after Bitcoin abruptly dropped to $33,000 on January 24. However, the sharp 9% drop recovered fully within 8 hours after the price regained support at $36,000.

On January 26, Bitcoin rallied to $38,960 but failed to sustain that level and corrected 8.8% over the next 8 hours. After the recent ups and downs, Bitcoin is up 4% in the past 7 days.

Bitcoin Price 4 Hour Chart | Source: Tradingview

Even when prices fluctuate significantly, total futures liquidation remains relatively low, with $570 million long (buyers) and $690 million short (sellers). Data shows that Bitcoin futures account for 41% of the total $1.25 billion in liquidations.

Regulatory Regulations May Prevent Bitcoin Price Recovery

Total market capitalization is up a modest 1.6% on the weekly chart, matching Bitcoin’s performance.

Total crypto market capitalization (billion USD) | Source: TradingView

Note, capitalization formed a higher low on Jan. 24 and currently shows support at $1.75 trillion. Even with a 22% drop in 2022, the total crypto market capitalization is still up a strong 12.5% ​​since the low on Jan. 24.

Investors appeared to be studying this week’s regulatory news as US Congressman Ted Budd submitted an amendment to remove the bill provision that would have allowed the US Treasury Department to unilaterally ban certain transactions financial transactions without the participation of the public.

If passed in its current form, the US Competition Act of 2022 will result in a major blow to the crypto industry, as Coin Center executive Jerry Brito has stated.

Investors were also affected by other news from the United States. As Cointelegraph reported, the White House is reportedly preparing a proposal requiring government agencies to conduct analysis of cryptocurrency risks as a national security threat.

Metaverse tokens perform well after last week’s Apple news

The steady stream of bearish news may have been to blame for the recent market slump but there have been some stellar performances from Metaverse tokens.

Coins that increase and decrease weekly on January 31 | Source: Nomics

Apple CEO Tim Cook (AAPL) said on January 27 that Metaverse apps have a lot of potential and that his company is investing in more augmented reality development on its devices.

This news was enough to boost Metaverse related tokens by 36%, including FLOW, SAND, MANA, ENJ, and AR.

On the other hand, LUNA slipped after the Avalanche-based reserve currency Wonderland Money (TIME) announced a pending proposal that would determine if the project would go down. As a result, the stablecoin MIM has dropped below 1 and some speculate that this may impact Terra’s LUNA token as well as UST.

Scalable and interoperable blockchain solutions like Cosmos (ATOM), Fantom (FTM) and Harmony (ONE) show negative performance after Ethereum hashrate surpasses 1.11 PH/s – the highest ever Yes. Increasing hashrate means more miners are joining the network, which strengthens blockchain security.

USDT and CME futures spreads show improvement

USDT Spread on OKEx measures the difference between peer-to-peer (P2P) transactions in China and the official US dollar. Figures above 100% reflect the overwhelming demand for crypto investments. On the other hand, a 5% discount often signals severe selling activity.

USDT peer-to-peer arbitrage on OKEx vs USD | Source: OKX

The USDT indicator continues to show strength as it remains above 99% for the past 7 days. That is in stark contrast to 3 weeks ago when Chinese traders panicked selling leaving the indicator at a discount of 4%.

To confirm the improved crypto market structure, traders should analyze the CME Bitcoin futures premium. This index represents the difference between a longer-term futures contract and the current spot price in conventional markets.

Whenever this indicator fades or turns negative (sell-off), it reflects bearish sentiment.

CME 2 Month BTC Futures and Bitcoin Price | Source: TradingView

These fixed-month contracts typically trade at a slight premium, indicating that sellers are demanding more money to hold payments for longer. As a result, futures contracts should trade at a spread of between 0.5% and 2% on healthy markets, a situation known as a put-off.

From January 18 to 24, the indicator was active in a sell-off zone when Bitcoin dropped below $42,000. However, when BTC showed signs that $33,000 appeared to be a local bottom, the futures market recovered the premium back to a healthy 0.5%.

Considering the total crypto market cap is down 22% in 2022, the market structure looks poised for a rebound.

If these fundamental indicators do not change significantly, Bitcoin bulls will start to feel comfortable adding positions below $40,000.

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