Crypto derivatives block BTC

Volumes on crypto derivatives have steadily exceeded those of the spot market.
It is useless to underline how such a scenario is not optimal for the sector and led to cyclically events of "mass liquidation" of those traders (or better gamblers) who abuse the financial leverage and end up triggering phases of very high volatility, both upwards and downwards.

Not to mention that thanks to derivatives it is possible to suppress the price of a certain underlying asset, as happens with gold (despite the new Basel III directives) and in recent years with bitcoin (not just me, but also authoritative publications of the caliber of Bloomberg).

Last but not least, in the crypto market it is possible to carry out naked short selling operations, which are forbidden in regulated markets.

Thanks to this practice, you can sell short a negotiable asset of any kind without first borrowing the asset itself. So, absurdly, by having large reserves of fiat currency it would be possible to achieve a "fictitious" bitcoin supply such as to exceed the circulating supply.

And if we analyze the data of the last months on the main crypto derivatives platforms, there is precisely an abuse of this practice. Obviously, such a dynamic is not sustainable in the long term because the spot supply of bitcoin is limited and in a phase when demand will once again exceed supply there are no derivatives that can hold. Not to mention BTC's balance sheets on exchanges at a minimum.
As Plan B also suggested a while back, you can't keep a balloon underwater forever.

Looking at the prices, bitcoin's recent price action confirms that the correlation with equity indices is still remarkable, although the bearish are looking increasingly exhausted after pushing prices over -40% from November's highs.

This is evident from yet another failed attempt at a technical breakout of the $40K mark, on a day when the equity markets were under heavy selling pressure.

If we analyze the daily BTC/USD chart, we will find as many as 8 breakdown attempts that never led to a close below $41500. The consecutive series of wicks indicates the inability of BTC bears to sink the blow, a sign that the ammunition is running out.

Today, the major equity indices are showing a slight uptick after discounting spring 2020 style declines. We know that markets are down due to expectations of central banks raising interest rates to combat rising inflation.

There is virtually no doubt that there will be a first hike in March, but investor fear is directed at what happens next, with fears of a continued rate hike followed by the end of Quantitative Easing.

Those of you who have been following my posts for a while know that I think it is extremely unlikely that monetary policy will change so radically. In addition to the level of public and private debt that is now out of control, no country will want to cripple its stock market and the investments that go with it, and I believe that inflation will tend to normalize naturally if policymakers can intervene firmly on what has been the main driver of the current hyperinflation: commodity costs.

Look at what's happening at the macro level: major economies are struggling, stock indexes are being subjected to steadily increasing selling pressure, but oil prices continue to rise.
In this context, the Fed and other central banks are in a dangerous cul-de-sac.

Obviously, in such an extreme context, Bitcoin went on to test the lower limit of the $40500/44500 trading range, confirming the holding of support thanks to the massive intervention of buyers at the $41200 level.

Market capitalization fell below $2 trillion.
BTC dominance index stable at 40%.
Fear/Fearlessness Index at 24 points (extreme fear).

At the end of the month there will be an important expiry of BTC options with max pain price at $ 46500, so in my opinion, the most likely scenario sees bitcoin still traded within the trading range highlighted above, with the area of $46K that will gradually tend to "attract" prices.

However, in case of a rapid deterioration of sentiment in traditional markets, the alternative scenario sees bitcoin going to test the $37500-38000 area for fresh liquidity replenishment.

Such an eventuality does not change the medium to long-term outlook one iota.

I am increasingly bullish on Bitcoin, in a context of extreme weakness in major economies as central banks "threaten" a rate hike/reduction of QE and markets turn into "risk-off mode" by falling violently.

We know how this will end and it is certainly not with six interest rate hikes.

In this context, my approach will be extremely simple: constant accumulation in the spot market, no use of leverage and a good dose of patience.

The medium to short-term scenario will still be characterized by extreme volatility, with derivatives acting as the real driver of the market.

Thanks for reading.

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