Bitcoin's price has been in a tight range since August 8, struggling to break above $62,000 while maintaining support at $58,000. This period of consolidation highlights increasing uncertainty among traders, especially as the BTC futures funding rate remains negative, signaling low leverage demand from buyers.
This situation raises the question of whether this indicator alone can determine the direction of the cryptocurrency market, or if historical trends suggest a potential rally on the horizon.
S&P 500 and gold approach all-time highs, while Bitcoin struggles to maintain momentum
One significant concern for Bitcoin investors is the positive performance of the S&P 500 index, which is just 2.5% below its all-time high, and gold, which is trading only 1% below its record level. In this environment, it’s difficult to justify Bitcoin being 19.5% below its March 14 peak of $73,757, regardless of whether it’s viewed as a risk-on asset or a hedge against potential disruptions in the US debt situation.
Investor sentiment towards Bitcoin has also been impacted by the fact that Democratic presidential nominee Kamala Harris has not provided a clear stance on the crypto industry, beyond vague campaign statements. Meanwhile, Republican nominee Donald Trump has announced plans to remove Gary Gensler from his position as Chair of the US Securities and Exchange Commission (SEC). Industry leaders have openly criticized Gensler’s lack of a clear regulatory framework for crypto companies in the US.
Recent economic data supporting the US Federal Reserve’s (Fed) successful efforts to curb inflation without triggering a recession may have also played a role in the declining interest in Bitcoin. US retail sales rose by 1% in July, exceeding economists' expectations of a 0.4% increase. Additionally, the Department of Labor reported 7,000 fewer initial jobless claims than the previous week.
Yung-Yu Ma, chief investment officer at BMO Wealth Management US, told Yahoo Finance that a "soft landing is firmly in place." A stronger macroeconomic environment essentially strengthens the stock market, reducing Bitcoin’s appeal as an independent store of value.
From a trading standpoint, the demand for leverage through BTC futures contracts is a critical indicator of investor confidence. When market optimism is high, bullish investors usually take on leveraged positions, pushing the funding rate on perpetual contracts into positive territory. Rates between 0.2% and 1.2% per month generally suggest neutral market conditions, while rates below this range are considered bearish.
Data shows that the Bitcoin perpetual futures funding rate was predominantly negative on August 14 and 15. The last time this indicator approached bullish levels was on June 8, when Bitcoin’s price tested the $72,000 resistance. This is understandable, as perpetual futures are the preferred leverage instrument for retail traders, while monthly contracts, which require rollovers, often trade at a premium or discount relative to spot markets.
Declining demand for crypto in China reflected in stablecoin data
To assess if the lack of buyer confidence is restricted to perpetual futures, it's also essential to look at stablecoin demand in Chinese markets. Typically, strong retail demand for cryptocurrencies drives stablecoins to trade at a premium of 2% or more above the official US dollar rate. Conversely, a discount usually signals fear, with traders eager to exit the crypto markets.
On August 15, USD Tether (USDT) was trading at a 0.2% discount in China, indicating reduced demand for cryptocurrencies. This marks a notable change from August 6, when traders were paying a 2% premium for USDT, the lowest level for this indicator in three months.
Based on BTC derivatives metrics and stablecoin demand in China, Bitcoin faces a tough road to reclaim the $62,000 support level. However, historical data suggests that retail traders often react to market movements rather than anticipate them, so a breakout cannot be entirely ruled out.
