Bitcoin (BTC) cut some gains and fell below $ 60,000 on March 14, a day after Binance hit a new all-time high of $ 61,950. However, data on the chain suggests that the uptrend is likely to continue in the short term.
An important metric that signals an optimistic short-term trend for Bitcoin is the increase in stable Bitcoin deposits in exchanges.
Although high funding rates and a crowded market lead to a drop in prices, the entry of side capital into the crypto market can further increase Bitcoin’s momentum.
Why Bitcoin fell after breaching $ 60,000
When Bitcoin enters pricing and hits a new record high, interest in the market naturally increases.
The current red hot market has plenty of liquidity, making it an ideal time for whales and high net worth investors to take profit from their positions.
Bitcoin funding rates. Source: Bybt.com
Filbfilb, a pseudonymous trader and technical analyst, noted that it saw high futures market funding rates and Bitcoin deposits on exchanges before the decline.
The bitcoin futures market uses a mechanism called “funding” to motivate traders based on market equilibrium.
For example, when there are more buyers or long contract holders in the Bitcoin futures market, short sellers are encouraged to sell or short sell. In this case, the funding rate increases, making it expensive for traders to buy Bitcoin.
Before the decline, BTC’s futures funding rate was hovering in the 0.05% to 0.1% range, which is five to ten times higher than the standard 0.01% funding rate. Filbfilb stated:
“Bitcoin temporary sell-off after high funding, large net BTC inflows and weekend pump. Presumably people thought it was different this time.”
High Bitcoin inflows into exchanges likely fueled the decline, as whales often deposit BTC into exchanges when they intend to sell.
Hence, the combination of whale selling pressure and the high rate of futures funding was the likely reason for today’s retreat.
How stable coin inflows can further fuel the BTC rally
Despite the stop of the rally, the inflows of stable coins into the exchanges are increasing again according to the latest data from CryptoQuant.
In the crypto market, traders often hedge their holdings against stable coins such as Tether (USDT) and USDC instead of withdrawing them via withdrawals to bank accounts.
Typically, exchanges have a processing time of three to seven days for cash deposits. When traders want to re-enter the cryptocurrency market, it becomes difficult to move cash from their bank accounts back to exchanges.
BiTC exchange rate reserve (blue), stable coin inflows (green) versus BTC price (yellow). Source: CryptoQuant
So when stable coins start flowing into the exchanges again – as indicated by the green spikes in the graph above – it suggests that the side capital may be trying to get back into Bitcoin.
CryptoQuant CEO Ki Young Ju wrote:
“There have been very frequent inflows of stablecoins into exchanges. 100-287 stablecoins deposits in each ETH block (15 seconds). I think we will see more pumps on $ BTC or $ ETH in the short term.”
During the past week, there was a lack of stable Bitcoin inflows during the Bitcoin rally.
If Bitcoin increases without a noticeable increase in stable Bitcoin inflows, the likelihood of an unsustainable uptrend and a short-term correction increases.
If the trend of side capital moving back into the crypto market continues, there is a high chance that this will further boost Bitcoin’s momentum and lead to a broader rally.
