Funding rates hit 6-month high ahead of CPI – 5 things to know in Bitcoin this week
Bitcoin (BTC) kicks off the second week of November and battles some known FUD – how will BTC price action react?
The largest cryptocurrency managed a weekly close just below $21,000 on November 6 – an impressive multi-week high – but remains stuck in a sticky trading area.
Despite seeing highs of nearly $21,500 in the past week, there has yet to be a catalyst capable of breaking the market status quo, but the coming week has as good a chance as any to do so.
On November 10, key US inflation data for October will be released, while jobless claims and more speeches from Federal Reserve officials could also affect volatility in risk assets.
An unexpected twist from the crypto realm comes in the form of turmoil involving exchanges FTX, Alameda Research and Binance.
Liquidity concerns have escalated as Binance CEO Changpeng Zhao reveals a plan to sell the platform’s entire holdings of FTX’s proprietary token, FTT.
Bitcoin reacted in line with market sentiment overnight, but going forward, will the debacle prove to be anything more than classic crypto FUD?
Cointelegraph takes a look at some of the key factors that will influence BTC price action in the coming days.
FTX concerns disrupt weekly close
While falling into the weekly close, BTC/USD still managed to post its highest such weekly candle close since mid-September.
Data from Cointelegraph Markets Pro and TradingView shows that the week of November 6 is capped at $20,900 on Bitstamp.
With that, Bitcoin defends its trading range and avoids a noticeable breach of its current paradigm – vacillating between $19,000 and $22,800 since August.
While they were heading closer to the top of the range, the FTX news involving Binance seemed to dampen sentiment significantly, and eventually Bitcoin hit $21,000.
“As part of Binance’s exit from FTX shares last year, Binance received approximately 2.1 billion USD equivalent in cash (BUSD and FTT),” Binance CEO Changpeng Zhao (aka “CZ”) wrote in a Twitter thread.
“Due to recent revelations that have come to light, we have decided to liquidate the remaining FTT on our books.”
Zhao added that selling off its FTX holdings would take Binance “a few months,” acknowledging that markets could be affected throughout.
In his own threadSam Bankman-Fried, CEO of FTX, meanwhile, referred to what he called “unsubstantiated rumours” regarding liquidity issues.
“We are grateful for those who stay; and when this blows over we will welcome everyone else back,” he wrote in an upbeat post to followers overnight.
The market reaction has so far been less positive; a look at the top ten cryptocurrencies by market cap shows 24-hour losses on some tokens approaching 10% at the time of writing.
For Bitcoin traders, it’s time to take advantage of the one-week retracement they believe should result in further upside.
“Missed lower time frame support. Nice little pullback. Will look to extend when it finds next support,” popular trading account IncomeSharks wrote in an update.
A separate post focused on potential cross-crypto gains.
“Total market value looks good on a daily basis. Bull or bear, I think there are enough people still sitting on cash to push up to 1.5 trillion,” read.
Michaël van de Poppe, founder and CEO of trading company Eight, also said that he would look for “buying dip opportunities” across crypto in the near term.
A classic counter perspective came from fellow Crypto trader Il Capo, who argued that $21,500 will mark the high point of a downtrend that will continue.
“Seeing whales looking to fill ask at 21500. A very quick scam pump to this level would be the perfect end to the party. ETH to the 18th,” part of a tweet tired.
CPI and US midterms in focus
The Federal Reserve dominated the last week of October in terms of crypto asset performance thanks to its decision to raise interest rates by another 0.75%.
As this is implemented, markets will be looking at another key figure this week – October consumer price index (CPI) data.
Estimates put year-over-year inflation at 7.9%, according to economists surveyed by Bloomberg, down 0.3% from September.
Any lower-than-expected CPI reading could be a boon for crypto and risk assets, as it theoretically increases the chances of the Fed pulling back on rate hikes sooner.
Before CPI and unemployment claims, however, there is the matter of the US mid-term elections to deal with – a potential source of volatility in its own right.
“Personally, I’m in no rush yet to start buying,” well-known social media personality @CryptoGodJohn told followers.
“CZ vs SBF drama, midterm elections on Tuesday, CPI on Thursday. This will be the biggest week in crypto that will set the tone for the end of the year.”
The announcement of the rate hike was something of a false tone-setter, having sparked volatility that canceled itself out within days.
Co-commentator Capital Hungry meanwhile warned of the impact of stronger CPI inflation:
“If the US CPI this week remains high, we’re going to see gold upside reverse, USD strength return and equities come back into play.”
The US Dollar Index (DXY) was recovering lost ground at the time of writing, after seeing a dramatic 2% daily decline on November 4th.
Financing interest rates are high
In a warning signal to bulls — and especially late longs — Bitcoin funding rates are rising on derivatives exchanges.
As noted by Maartunn, a contributor to the on-chain analytics platform CryptoQuant, funding rates now peak in six months.
Funding interest is a mechanism used in perpetual contracts to keep the price close to the spot price of Bitcoin.
Highly positive funding rates suggest that the market expects BTC/USD to go higher and traders are paying for the privilege of going increasingly long BTC.
The effect can be detrimental, as a price decline ends up liquidating a large number of overly bullish positions.
“And at the moment funding rates are very high. Traders are betting on higher prices and are willing to pay a serious amount of interest,” Maartunn explained alongside CryptoQuant data.
“It doesn’t have to be bearish perse, but when the price starts to move against them they may be forced to exit their position or it will be liquidated.”
As Cointelegraph reported, last month there were record liquidations for 2022 when Bitcoin hit $21,000.
Maartunn added that funding was “something to keep an eye on in the coming days.”
Miners miss out on difficulty adjustments
Bitcoin’s network fundamentals remain in an interesting, if not entirely bullish, state.
The latest data from chain monitoring resource BTC.com confirms that network difficulty dropped by 0.2% on November 7 – far less than previously estimated.
The result has implications for miners, who have seen profits squeezed even as the hash rate hits new all-time highs.
A significant reduction in difficulty levels would help level the playing field for some, and the absence keeps up the pressure on some players.
Even Bitcoin’s biggest public miners are “severely underperforming BTC” in the current environment, Sam Rule, market analyst at UTXO Management, revealed last week.
As Cointelegraph reported, the combination of high hash rate and low profitability for miners is nevertheless a potential reason to classify Bitcoin as undervalued.
Bitcoin Yardstick continues to move further into its “cheap” zone this month, after seeing rare lows.
The sentiment gauge has reached a three-month high
It may not be all doom and gloom for sentiment in the crypto market.
Related: Buying Bitcoin ‘Will Disappear Quickly’ When CBDCs Launch – Arthur Hayes
According to the Crypto Fear & Greed Index, cold feet are being shaken off in Bitcoin’s run to its highest since September.
Fear & Greed, which measures sentiment with a normalized score of 0-100 using a basket of factors and offers various labels – extreme greed, greed, neutral, fear and extreme fear – to categorize them, reached its highest since mid- August at weekend.
At 40/100, optimism proved unsustainable thanks to the market pullback into the new week, and as of November 7, 33/100 is in place – well within the “fear” bracket.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trade involves risk, you should do your own research when making a decision.
