Bitcoin’s 20% rebound in a day is one of the biggest of all time – but there is a catch

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Bitcoin (BTC) price rose 20% on January 12, from $ 30,500 to around $ 36,600 on major exchanges. While the rebound was strong after the correction, there are two warning signs.

BTC / USDT 1-hour price chart (Binance). Source: TradingView.com

First, the refinancing rate on the futures market remains high. The funding rate is a mechanism that creates incentives for 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. When the funding rate is high, it means buyers are paying sellers.

Second, the US Dollar Strength Index (DXY) is starting to rebound, which could be a bearish sign for Bitcoin and Gold.

What’s next after Bitcoin’s fall and recovery?

According to Julien Bittel, Multiasset fund manager at Pictet Asset Management, the US dollar is “very oversold”.

The dollar has fallen steadily since the coronavirus pandemic began in early 2020 and is struggling to hold its own against other reserve currencies such as the Japanese yen.

The uncertainty surrounding the US election and incentives resulted in the DXY underperforming in 2020.

Bittel said the dollar looks oversold now and the dollar’s momentum could pick up in 2021. He wrote:

“The dollar looks very oversold. I still think that a stronger dollar will be a key issue to watch out for in 2021. The speculators are again close to the record short DXY as% of total OI. The current decline in DXY looks very similar to that of 03/17/02/18. This analogue would indicate that a base could be in place by the end of the first quarter of 2021. “

The dollar’s positive outlook poses a risk to Bitcoin’s momentum as alternative stores of value are valued against the dollar.

If the dollar begins to recover, both gold and bitcoin could see a potential decline, especially after a strong quarter.

On the soaring dollar, the high refinancing rate of the Bitcoin futures market is a problem in the short term.

A high futures refinancing rate isn’t necessarily bad in and of itself, but if the price of Bitcoin goes down while the refinancing rate stays high, it can increase the likelihood of a correction.

The combination of the dollar’s momentum and the overheated derivatives market makes a pullback more likely in the short term.

The lack of stable coin inflow is another problem

Ki Young Ju, CEO of CryptoQuant, said a “second dumping” could occur, as seen on Jan. 11. He explained that miners are selling without stable inflows of coins, which is a problematic trend.

Bitcoin Miners position index. Source: CryptoQuant

Stable bitcoin inflows typically represent buyer demand from the secondary capital. If the deposits of stable coins on exchanges increase, it indicates an overall bullish market sentiment. Ki wrote:

“Nothing has changed since yesterday. Miners sell, since yesterday no significant # stable coin inflows, no # coin outflows and 15,000 BTC flowed into the exchanges. We could have a second dumping. “

In the foreseeable future, the ideal scenario for bullish traders would be to wait for the funding rate to neutralize and for stable coin inflows to rise.