Crypto Market is ‘Extremely Greedy’ for the First Time in 2020

Before bitcoin started up-trending last week, its volatility fell below 25%, a level rarely seen in BTC’s history, which had the market expecting a big move. Coin Metrics notes,

“Prolonged periods of low levels of volatility encourage market participants to take on greater position sizes, engage in increased leverage, set tighter stops, and reduce the thresholds upon which they will respond to new information.”

In the crypto market, this phenomenon is even stronger due to the amount of leverage present.

Digital assets started showing signs of life as bitcoin burst over the weekend, breaking through the psychologically important $10,000 level.

The erratic price action of bitcoin, however, resulted in the futures curve steepening aggressively, “encouraging further leverage flow and stablecoin carry trade-related flow.”

During this price action, bitcoin futures on Bakkt registered record trading volume while the open interest on CME hit an all-time high of $724 million.

Similarly, the options market indicates, market participants are turning more bullish, leading to a degree of position scrambling and short positions getting squeezed. Denis Vinokourov of Bequant said,

“The downside to this parabolic rise is the so-called liquidity vacuum and “gaps” in price discovery (…) this temporary liquidity drainage in the small and mid-cap sector creates an opportunity to pick up bargains.”

The real test, according to him would be if bitcoin can hold on to the key $10,500 and $10,000 levels once this rally runs out of steam, with worrying signs of elevated funding rates in perpetual contracts.

All the Bullishness

The gains this week has people turning extremely greedy for the first time in 2020, “showing signs of an exuberant market sentiment.” The last time the Fear & Greed index was at these levels was during the peak of euphoria in July 2019 when BTC hit the yearly high of $13,900.

Interestingly, these gains came amidst a decline in the US dollar and gold, making a new all-time high, which reinforces its safe-haven properties.

In the current world of low minimal interest rates for the foreseeable future on top of inflation expectation, non-yielding assets like bitcoin and gold become increasingly attractive.

However, it is “Unfortunate for BTC longs to see precious metals print a major top at the same time BTC starts being driven by the same factors and price just starts to take off,” said trader and economist Alex Kruger.

Bitcoin and gold’s 30-day correlation is returning to all-time highs, set in March when all risk assets sold off.

The monetary and fiscal response to the coronavirus pandemic has only increased the uncertainty of the future path of inflation and monetary policy, which is supportive of BTC prices. Today, the Fed extended its lending program until the end of the year.

Also, Goldman Sachs analysts said there are “real concerns around the longevity of the US dollar as a reserve currency have started to emerge.”

Other bullish facets this time involve a record percentage of bitcoin supply, 62% amounting to 11.4 million BTC, not moved in at least a year.

Moreover, during this ongoing rally, peer-to-peer volume in many countries has hit an ATH this week. Both Nigeria at $10.3 million and India at $3.8 million made new peaks breaking the ones made just a week before that.

Kenya ($2.5M), South Africa ($2.2M), Ghana ($1.9M), and the Philippines ($1.1M) also made new highs.

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