As Bitcoin nears $25K, questions about rally’s sustainability remain

It is no secret that the global economy has continued to weaken over the course of the past year. To this point, on Jan. 19, the United States government hit its “debt ceiling,” i.e. the total sum of money that the U.S. Treasury can borrow to fund its ongoing federal operations, leading to renewed concerns that more financial pain and the economic slowdown could be incoming.

Similarly, on the other side of the Atlantic, the United Kingdom has been struggling as well. This is made evident by the fact the number of company insolvencies registered in 2022 hit 22,109 — a 57% spike from the year prior and its highest rate since 2009. Not only that, the International Monetary Fund recently released a report suggesting that the United Kingdom would be the only G-7 nation to face a recession this year.

However, amid all this devastation, the crypto market seems to have caught some wind in its sail over the past month. In January, the total capitalization of this sector surged from $828 billion to approximately $1.1 trillion, signaling a rise of nearly 32%. Focusing on Bitcoin (BTC) particularly, on Jan. 30, the cryptocurrency rose to $24,000 after seemingly having stagnated around the $16,500 range for the better half of November and December.

In fact, the asset’s share of the market’s total cap rose as high as 44.82% recently, its highest such level since June last year. As a quick remedy, this number usually rises so steeply only when investors start limiting their exposure to altcoins and pouring their capital back into BTC.

Is $25,000 the next stop for Bitcoin?

After successfully defending a price target of $22,500 since Jan. 20, Bitcoin is currently showcasing a 30-day profit ratio of around 40%. This spike has been mirrored by similar surges in the stock market, which rallied recently after China eased its COVID-19 restrictions after three long years of strict pandemic controls.

Furthermore, as per data made available by financial services company Matrixport, American institutional investors currently account for 85% of all recent Bitcoin accrual activities, suggesting that mainstream players are not ready to give up on the digital asset market. Thus, to gain a better understanding of where the industry may be headed in the near term, Cointelegraph reached out to Timothy T. Shan, chief operating officer for Avalanche-based decentralized exchange Dexalot. In his view:

“I think the recent rally in Bitcoin has been a positive surprise given all the negative news in the industry that is yet to be fully played out. That said, I don’t think this current rally is sustainable and users should expect more volatility.“

On a somewhat similar note, Frederic Fernandez, co-founder of DeFi trading application DEXTools, told Cointelegraph that the new year could be bullish for the crypto market if and only if the global economy is able to forge a recovery of sorts. This is because a large-scale trend reversal could boost the demand for alternative investments and increase liquidity in the market.

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“The market could remain bearish if economic uncertainty increases as restrictive regulations may be imposed. However, if Bitcoin reaches $25,000, that could mean increased confidence and acceptance of cryptocurrencies leading to increased investment and widespread adoption,” he added.

Key market indicators

According to Luuk Strijers, chief commercial officer for Bitcoin and Ether (ETH) options exchange Deribit, the crypto market is slowly returning to greener pastures. To support this claim, he told Cointelegraph that the market is once again witnessing a “contango,” a situation where the futures price of an asset is higher than its spot price. In layman's terms, a contango is usually observed when the price of a particular asset is set to rise over time.

He said that BTC’s 25-Delta put skew has moved from over 30% to below zero, a bullish indicator. The above-stated metric allows analysts to forecast the price movements of an asset as well as estimate future fluctuations (volatility) based on certain predictive factors. “A drop in 1-Month Skew indicates the shorter-dated out-the-money calls are getting more expensive relative to the out-the-money puts, which is a bullish signal,“ Strijers noted.

He also highlighted that open interest in regard to Bitcoin and Ether options has been growing again, which is a positive sign specially when considering that a lot of this momentum was lost after last year’s large year-end expiry.

Not only that, Strijers pointed out that the options market’s put-call ratio (PCR) reached a local bottom late last month, suggesting that investors may once again be warming up to the digital asset industry. PCR is an indicator that is commonly used to determine the mood surrounding the options market.

Market sentiment analyzed

Over the last week of January alone, digital-asset investment products available in the market witnessed a cumulative capital inflow of $117 million, the largest such amount over the past 180-day stretch. Investors put funds largely into BTC-related offerings, which accounted for $116 million of the aforementioned figure.

Furthermore, digital investment product volume has continued to surge, approaching the $1.3 billion mark on Jan 30, up 17% when compared to its year-to-date value. However, short-Bitcoin products registered monetary inflows worth $4.4 million, which is not a good sign for investor sentiment, as per Coishares’ researchers.

Multi-asset investment vehicles saw money being drained from them for the third month running, with these outflows amounting to $6.4 million. According to Coinshares, this suggests that more investors are starting to move toward tried and tested crypto assets.

Lastly, the crypto fear and greed index, a tool that helps investors gauge crypto market movements and sentiment, currently stands at 60. This figure represents “greed,” i.e. people are looking to buy digital assets as they believe that more bullish traction may be coming in the near term

What lies ahead for the market?

From a macro perspective, Shan believes that the Federal Reserve is close to reaching its terminal rate goal — the neutral interest rate where prices are stable, and full employment is achieved — which currently stands slightly above 5%. In his view, the Fed will hold this figure for the duration of the year while also noting that any looming recession will be very mild, one that shouldn’t impact the crypto market too much.

He further noted that strict regulations will most likely be incoming shortly, which, if done correctly, could help the market immensely. “The industry could grow exponentially just because of good regulations as they will open the door to mass adoption over the next 10+ years,” Shan said.

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Lastly, the hard selloff as well as the various instances of fraud, over-leverage, poor controls and governance over the past year, have been a good reset for the crypto economy, in his view. This is because they can help serve as lessons for the industry, allowing participants to act responsibly and allowing the industry to blossom sustainably.

Thus, as we head into a future driven by increasing economic uncertainty, it will be interesting to see how the landscape of the digital currency market continues to evolve, especially with Bitcoin and other major cryptos forging a minor comeback at the moment.