Stablecoin Data Points to Bulls’ ‘Healthy Appetite’ and Possible Bitcoin Rally to $25K

Bitcoin (BTC) rose 11% between January 20 and 21, hitting the $23,000 level and shattering bears’ expectations for a pullback to $20,000. Even more noteworthy is the move that sparked demand from Asian-based retail investors, according to data from a key stablecoin premium indicator.

Traders should note that the technology-intensive Nasdaq 100 index also rose 5.1% between January 20 and 23, fueled by investor hopes that China will reopen for business after the COVID-19 lockdowns and weaker than expected economic data in the US and the Eurozone.

Another bit of bullish information came on January 20 after US Federal Reserve Governor Christopher Waller boosted market expectations of a 25 basis point interest rate hike in February. A handful of heavyweight companies are expected to report their latest quarterly earnings this week to complete the puzzle, including Microsoft, IBM, Visa, Tesla and Mastercard.

Essentially, the central bank is aiming for a “close landing” or controlled downturn of the economy, with fewer job openings and less inflation. However, as companies struggle with their balance sheets due to the higher cost of capital, profits tend to take a nosedive and eventually layoffs will be much higher than expected.

On Jan. 23, on-chain analytics company Glassnode pointed out that long-term Bitcoin investors held losing positions for more than a year, so they are likely more resilient to future adverse price movements.

Let’s take a look at derivatives metrics to better understand how professional traders are positioned in the current market conditions.

The Asia-based stablecoin bounty is approaching FOMO territory

The USD Coin (USDC) premium is a good gauge of demand from China-based crypto retailers. It measures the difference between China-based peer-to-peer transactions and the US dollar.

Excessive buying demand tends to push the indicator above its fair value of 103%, and during bearish markets, the stablecoin’s market supply is flooded, causing a discount of 4% or more.

USDC peer to peer vs USD/CNY. Source: OKX

Currently, the USDC premium stands at 103.5%, up from 98.7% on Jan. 19, indicating increased demand for buying stablecoins from Asian investors. The move coincided with Bitcoin’s daily gains of 11% on Jan. 20 and indicates moderate retail FOMO as BTC price approaches $23,000.

Protraders are not particularly thrilled after the recent gains

The long-to-short metric excludes externalities that may have only impacted the stablecoin market. It also collects data from exchange clients’ positions on the spot, perpetual and quarterly forward contracts, providing better information on how professional traders are positioned.

There are occasional methodological discrepancies between different exchanges, so readers should track changes rather than absolute numbers.

Stock exchange’s top traders Bitcoin long-to-short ratio. Source: Coinglass

The first trend one can see is that the top traders of Huobi and Binance are extremely skeptical about the recent rally. Those whales and market makers haven’t changed their long-to-short levels in the last week, meaning they’re not confident buying more than $20,500, but they’re not willing to open short (bear) positions.

Interestingly, top traders at OKX reduced their net longs (bull) until Jan. 20, but drastically shifted their positions during the final phase of the bull run. Looking at a longer time frame of 3 weeks, their current 1.05 long-to-short ratio remains lower than the 1.18 of January 7.

Related: Bitcoin miners’ worst days may be over, but a few major hurdles remain

Bears are shy and provide an excellent bull-running opportunity

The stablecoin premium of 3.5% in Asia points to increased interest from retailers. In addition, the top traders’ long-to-short indicator shows no increase in demand from shorts, even as Bitcoin reached its highest level since August.

In addition, the liquidation of $335 million in short (bear) BTC futures contracts between January 19 and January 20 indicates that sellers are continuing to use excessive leverage, creating the perfect storm for another leg of the bull run.

Unfortunately, the price of Bitcoin continues to depend heavily on the performance of the stock markets. Considering how resilient BTC has been during the uncertainties surrounding the bankruptcy of Digital Currency Group’s Genesis Capital, the odds are favorable for a rally towards $24,000 or $25,000.