New data: It is too early to determine the minimum price of bitcoin

With the fall and recovery of bitcoin prices, some traders say the digital currency has reached a low level. However, to ensure this, we must also take into account the link between bitcoin and traditional financial markets, as well as the impact of current political conditions.

According to the Kevin Telegraph, the price of this digital currency fell 23% in the eight days after February 16 (February 17), when bitcoin failed to break its resistance of $ 45,000. On February 24, just after the escalation of the Russia-Ukraine conflict, the price of bitcoin fell to $ 34,300 and the risk of increasing sales pressures increased.

As the price of bitcoin reached its highest level of all time, Asian stock markets collapsed. The Hong Kong stock market index Hang Seng, for example, fell 3.5 percent. In addition, the Nikkei, one of the hallmarks of the Tokyo stock market, reached its 15-month low.

New data: It is too early to determine the minimum price of bitcoin
Graph of the price of bitcoin in dollars.

The question that arises in the first place is whether digital currencies have overreacted to other high-risk assets. Undoubtedly, bitcoin fluctuates much more than traditional markets, and the annual fluctuation of this digital currency reaches 62% per year.

Compared to bitcoin, the annual volatility of the Russell 2000 index is only 30%. Russell 2000 is an index used to study the stock market of small and medium-sized companies in the United States. In addition, according to the Chinese MSCI index, the shares of Chinese companies fluctuate by 32% per year.

New data: It is too early to determine the minimum price of bitcoin
Fluctuations in bitcoin prices in dollars (purple chart), Hong Kong index (blue chart) and Russell’s chart 2000 (orange chart) in February (February).

There is a strong correlation between the price of bitcoin, the Hong Kong stock market and the US Russell 2000 index. A possible reason for this correlation may be the US Federal Reserve’s restrictive policy to reduce money supply. During this period, the Federal Reserve delayed the purchase of bonds and threatened to raise bank interest rates, which caused traders to panic and seek to create a secure margin for themselves.

Although bank interest rates have not risen since inflation reached 7.5 percent in January, investors are seeking to protect their assets against the devaluation of the dollar and problems with the US Treasury. It is worth noting that this is especially true when there is a sense of distrust of the market.

Bitcoin futures traders are worried

To understand the views of professional traders, we need to look at bitcoin trading in derivatives markets. The annual premium for bitcoin futures contracts should be between 5 and 12 percent so that traders can be ready to lock their money in two to three months, until the end of the transaction maturity date. Premium futures is an indicator that calculates the difference between the price of futures and the price of current markets.

New data: It is too early to determine the minimum price of bitcoin
Index of quarterly bitcoin futures on FTX and OKX exchanges.

If the annual premium index is less than 5%, it means that traders expect the price of bitcoin to fall sharply. On the other hand, if the annual premium index is more than 12%, it means that traders expect the price of bitcoin to rise sharply. As you can see in the image above, the premium index of bitcoin futures fell below 5% on February 9. This shows that professional traders in this market were not sure about the increase in the price of bitcoin.

The current premium of 2.5% is the bottom of this index from July 20, 2021 (July 29). On that date, the 74-day adjustment to the price of bitcoin ended. In fact, the 71% rise in the price of bitcoin since that day, reaching a peak of $ 69,000, confirms the theory that the futures index is the only measure of the past.

New data: It is too early to determine the minimum price of bitcoin
30-day correlation between Bitcoin and Russell 2000 index (purple chart).

In the photo above, you can see that on July 20, the bitcoin correction had a strong correlation with the Russell 2000 index. However, the situation quickly changed; Because bitcoin has managed to start its upward trend regardless of traditional markets.

It is too early to set a minimum price

As with the futures index, historical data are used to estimate correlations. As a result, it is not possible to use it to predict whether the bitcoin trend will change. Investors, especially professional fund managers, tend to avoid volatile assets in turbulent markets.

Understanding the psychology of the market is a very important issue to avoid unexpected price fluctuations. As a result, while digital currency market members view bitcoin as a risky asset, these short-term reforms should be seen as a rule and part of the process; It is not an unexpected event.

So, instead of predicting whether bitcoin is at the bottom or not, it is better to wait for more tokens.

The publication New Data: It is too early to determine the minimum price of bitcoin appeared for the first time in digital currency.

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