A Certain Bitcoin Indicator is at a Critical Point: Crypto Analyst

• Cryptoquant identifies Spot and Futures to be leading Bitcoin rally and decline respectively.
• The Bitcoin buying trend remains strong, but volume is dropping.
• Bitcoin’s conflicting signals put traders on the alert.

A Cryptoquant analyst, Wenry has indicated that in January, it was the spot market that heralded the rally in Bitcoin price. On the other hand, futures took the driving seat ahead of Bitcoin’s decline. According to Wenry, Bitcoin still retains a strong buying trend, but the trading volume is in the fall. Not just that, but the indicator has reached a critical point of overbought.

The latter part of Wenry’s analysis did not necessarily clarify what could happen next to the price of Bitcoin. It suggests a conflict of solid signals, any of which can influence the market’s direction. This market condition has been consistent for most of the current rally, a mixture of a strong bullish trend and critical indicators suggesting a bear market.

Bitcoin’s increased volatility in 2023 coincides with a surge in the futures open interest at the Chicago Mercantile Exchange (CME). Since this year, the Open Interest in Bitcoin Futures has climbed to almost its record high. A report by Arcane Research reveals that growing interest from institutional investors is behind the surge in Bitcoin Futures.

According to Arcane, CME’s market dominance was only higher than its current level in October 2021. The growing interest this time is linked to investors buying the heavily discounted GBTC and hedging through CME after Gemini sold 30.9 million GBTC shares while filing for bankruptcy.

An earlier analysis on Cryptoquant maintained the same sentiment. In a January 21, 2023 report, Cryptoquant indicated that Bitcoin was at a critical decision point. It noted that Bitcoin was trading below a strong resistance which it must break to signify the end of the downtrend. In the wake of that, miners and short-term investors began selling off their Bitcoin holdings. They intended to secure profits made from the current rally. The impact of such a sell-off is yet to reflect on the price of Bitcoin. Instead, the crypto has continued to surge, registering a fourth straight bullish candle on the weekly chart.

The Bitcoin market is an ongoing battle between the bears and the bulls. Bitcoin’s behavior has ignored that in the past four weeks and the buying momentum has remained. Conflicting indicators have condemned traders and other participants in the Bitcoin market to threading with caution. Several traders expected prices to fall lower before a sustained rally would kick in.

Cryptoquant explains that despite being in a critically overbought region, the buying trend continues for Bitcoin. The next few weeks will be critical for investors under such conditions. Price evolution during this period will determine whether the bull market has kicked in fully or whether last month’s rally is a flash in the pan.