Bitcoin has reached a critical resistance level after finally breaking its negative price action. Although the cryptocurrency faces many headwinds to recover its previous highs but there are some signs that it may be able to find short-term relief.
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As of this writing, the benchmark cryptocurrency trades for $31,400. There has been a 5% profit over the last 24-hours as well as a 6% gain in the previous week. This has been one of the best trading sessions for BTC’s price in the past week and suggests a potential change in market sentiment.
Meltem Demirors (Chief Strategy Officer, investment firm CoinShares), recentlyWe have shared data on the sentiment in the market. As BTC’s price tumbled to $24,000, the sentiment has favored the bears.
CoinShares, however, has witnessed an increase of net inflows from publicly traded Bitcoin products. The inflows to these investment vehicles totaled $126million last week, which suggests investors are turning more bullish.
Demirors said:
(…) with 2 consecutive weeks of net inflows across all crypto products, investors are buying the dip.
Contrast this with Ethereum’s (ETH) market sentiment. This second cryptocurrency by market capital has experienced severe losses.
Investors seem to be fleeing to Bitcoin due to the uncertainty surrounding the macro-economic outlook, and uncertainty about the upcoming deployment of “The Merge”, Demirors said. This is evident in ETH investment products that have seen their 9ThAn consecutive week with outflows
“The Merge” is the event that will combine Ethereum’s execution layer, ETH 1.0, with its consensus layer, ETH 2.0. The latter will be supported by the Proof-of-Stake blockchain or “Beacon Chain”. Although the event was delayed on numerous occasions, it seems that things are moving along.
Bitcoin for Short-Term Relief
CoinShares stated that last week’s inflows of $100 million to investment in digital asset products was a record. However, most cryptocurrencies still remain in a rangebound state so the positive flow didn’t translate into price movement.
Demirors provides additional data that highlights movement in options. Market participants took call (buy) positions as inflows increased, but since then turned back to “defensive hedging with puts on the later half of the week”.
These factors may provide Bitcoin with a temporary relief. Economist Michaël van de Pope supportsThis is the thesis. As seen below, he expects BTC’s price to re-test resistance at $34,000 if it is able to sustain its current momentum.
However, the macro environment is still not favorable for Bitcoin or risk-on assets. NewsBTC reports that any narrative that points to a worldwide economic recession or the likes may play in the favor of cryptocurrency and risk-on asset.
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This may force the U.S. Federal Reserve (Federal Reserve) to ease down its monetary tightening. It could also give more room for risk-on assets.