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Putin, Xi Vow to Use Yuan as Russia and China Move to Settlements in National Currencies

Putin, Xi Vow to Use Yuan as Russia and China Move to Settlements in National CurrenciesAs part of the talks that Russian president Vladimir Putin and Chinese president Xi Jinping are currently conducting in Russia, Russia has vowed to move to use the Chinese yuan as a settlement currency with countries in Asia, Africa, and Latam. Putin expressed that using national currencies for international trading “should be encouraged further.” Russia […]

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Could NFTs and crypto help Japan’s ‘Cool Japan’ strategy?

Crypto-adjacent technologies could be a valuable part of Japan's strategy to promote its culture and boost its economy.

Japan has consistently been a leader in the tech industry, so it’s a logical step forward that, given current trends in the space, the Cool Japan movement might incorporate Web3 to strengthen its initiative. Bringing Web3 into the mix alongside the popular culture aspects of the movement could prove a boon for the mission, but this move has not yet been implemented by the government-led movement.

With much of Web3 still being an unknown in regard to its capabilities and future outlook, it is understandable that the government has yet to combine it with its initiative to bring Japan into the future technologically and to bring Japanese culture to other areas of the world, but doing so would certainly increase potential in many areas.

The creation of ‘Cool Japan’

If Japanese culture is so popular in other countries, it’s understandable that some might not understand why the government felt the need to create the Cool Japan initiative in the first place. But just because something is well-known or popular, it doesn’t necessarily mean it is thriving.

Ultimately, Cool Japan was created to promote positive attitudes toward Japan, increasing the sales of Japanese products around the world and promoting tourism. The mission of the movement, set forth in its proposal, is that Japan, as a country, provides creative solutions to the world’s challenges. The goal was never to simply promote the country as a cool place to be or go, but to also express that Japan can offer helpful ideas to the rest of the world.

The “Cool Japan” television series explores Japanese culture from the perspective of foreigners. Source: CR-Nexus

The country is known for its influence on popular culture as well as its consistent political stability and innovation. But while Japan may have a strong economy, it faces other issues, such as an aging society, loss of communities, and environmental and energy issues.

To achieve the country’s mission, the Cool Japan strategy consists of three steps: promoting domestic growth, connecting Japan and other countries, and becoming a Japan that helps the world. Each step has its own missions, set forth to achieve the overall goal, and there are multiple government organizations involved in the promotion of the initiative, like the Ministry of Foreign Affairs; the Ministry of Agriculture, Forestry and Fisheries; and even the Cool Japan Movement Promotion Council.

The success of the movement in the recent past isn’t wholly known, but what is known is that, as industries shift and times change, the strategy should as well, creating more of a potential for success in the future.

Japanese culture has been popular abroad for decades without slowing down. Everything from anime to manga to cuisine and traditional Japanese attire have expanded into and influenced other areas of the world, especially in the United States. The Japanese government caught onto this trend and saw its potential. This potential grew into action and led to the “Cool Japan” initiative, which was created to promote Japanese cultural products and technologies globally with the aim of increasing the country’s cultural exports.

The current state of Web3 in Japan

While Japan may not be leading the charge in Web3, it is certainly still ahead of many other countries.

Whiplus Wang, the head of Japanese crypto conference IVS Crypto, told Cointelegraph about where Japan currently sits with regard to Web3 and whether the Cool Japan movement has any plans of incorporating Web3 into its initiative to promote the country.

Recent: Is the SEC’s action against BUSD more about Binance than stablecoins?

While Wang said that Cool Japan has no relationship with Web3, Prime Minister Fumio Kishida is putting forth an effort to increase Japan’s adoption of it.

“Right now, there are three policies in place. One policy is for taxing companies, which has made many Web3 companies leave Japan and move to other countries, like Singapore,” said Wang. “I think this will change soon, though. They want to create a better environment for Japan to have these kinds of businesses.”

Per Wang, it seems like Web3 is moving slowly at the government level but much quicker at the community level. The government is still figuring out what Web3 is and what cryptocurrencies and blockchains can do, so the movement in that regard is slow going.

Widespread use of NFTs

On the community level, however, what Japan is doing with nonfungible tokens (NFTs) and Web3 is largely ahead of the curve. There are a couple of high schools that are providing courses to students on NFTs and Web3, some decentralized autonomous organizations are educating individuals on the basics of Web3, and there are even special policies that incorporate NFTs.

“In Japan, there is a special policy called Hometown Tax. With this, you can choose which region you want to pay your tax to, it doesn’t have to be the one where you live. When you pay the tax to a region, you get a gift back, something that is special to the area, like a good they are known for providing,” Wang explained. “Areas that don’t have anything special, they are giving out NFTs. Some of them would be coupons to local restaurants or something similar.”

If this policy were altered in a way that allowed exchanges with individuals outside of Japan, this could very well be a tactic used for Cool Japan to attract tourists from overseas just as it is currently attracting tourism within Japan.

Much of what Japan is doing with Web3 and cryptocurrencies is in-house, but there is a special market selling NFTs overseas — anime.

Anime is one aspect of Japanese culture that has become popular worldwide, garnering a large and loyal fan base. Some companies tied to anime have released NFTs that were immediately purchased by customers overseas.

Wang said, “For those companies, they are trying to use NFTs to attract revenue from overseas rather than inside Japan, because the rate for the people in Japan who own a wallet is really low.”

This is another tactic the Cool Japan movement could incorporate to increase visibility as a country and as a leader in the industry, combining the pop culture aspects that people all over the world love with the innovation that can only be found with Web3.

Future outlook

In order for the Cool Japan movement to realistically incorporate technology and Web3, Japan will likely first need more widespread social implementation. Sagawa Kohei, a promoter of the Symbol/NEM project and community, told Cointelegraph that the process might be slow.

“Blockchains empower individuals and creators, especially when compared to Web2. The transparency is expected to guarantee the authenticity of content, so you’ll know its history, who made it, who bought it, etc.,” said Kohei. “It’s still developing though and it’s not widely recognized in society. Most people don’t even know what it is. Social implementation will be increased, but will be little by little.”

Recent: Uniswap DAO debate shows devs still struggle to secure cross-chain bridges

While those in the industry (or in the know at all) might be few, their numbers certainly are growing, and the same can be said for the Web3 knowledge base in Japan. Kohei said that there are a number of services that currently accept crypto payments, and the government is working on regulations and taxation.

As Japan continues to move forward with its crypto and Web3 legislation and the government learns more about what it can do for the country as a whole, it will be interesting to see how companies are going to incorporate Web3 in their business practices. Once that takes off, it could provide the Cool Japan movement increasingly more potential for success. But even if the movement itself doesn’t create a relationship with the tech industry, Web3 could still very well allow Japan to meet the goals they set for it.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Bitcoin bulls remain in charge even in the face of increasing regulatory FUD

BTC’s correction to $22,750 followed negative remarks from financial regulators, but key Bitcoin price metrics show bulls remain optimistic.

Bitcoin (BTC) price broke above $25,000 on Feb. 21, accruing a 53% year-to-date gain at the time, it made sense to expect the rally to continue after U.S. retail sales data from the previous week vastly surpassed the market consensus. This fuelled investors' hope for a soft landing and the possible aversion of a recession in the U.S. economy. 

The apex of the U.S. Federal Reserve’s strategy success would be increasing interest rates and scaling back its $9 trillion balance sheet reduction without significatively damaging the economy. If that miracle happens, the outcome would benefit risk assets, including stocks, commodities and Bitcoin.

Unfortunately, the cryptocurrency markets took a hit after the $25,200 level was rejected and Bitcoin price plunged 10% between Feb. 21 and Feb. 24. Regulatory pressure, mainly from the U.S., partially explains investors' rationale for the worsening market conditions.

In a Feb. 23 New York Magazine interview, Securities and Exchange Commission (SEC) Chair Gary Gensler claimed "everything other than Bitcoin" is potentially a security instrument and falls under the agency's jurisdiction. However, multiple lawyers and policy analysts commented that Gensler's opinion is "not the law." Hence, the SEC had no authority to regulate cryptocurrencies unless it proved its case in court.

Additionally, at a G20 meeting, U.S. Secretary Janet Yellen stressed the importance of implementing a strong regulatory framework for cryptocurrencies. Yellen's remarks on Feb. 25 followed the International Monetary Fund (IMF) managing director Kristalina Georgieva pointing out that "if regulation fails," then outright banning "should not be "taken off the table."

Let's look at Bitcoin derivatives metrics to better understand how professional traders are positioned in the current market conditions.

Asia-based stablecoin demand is stagnant

Traders should refer to the USD Coin (USDC) premium to measure the demand for cryptocurrency in Asia. The index measures the difference between China-based peer-to-peer stablecoin trades and the United States dollar.

Excessive cryptocurrency buying demand can pressure the indicator above fair value at 104%. On the other hand, the stablecoin's market offer is flooded during bearish markets, causing a 4% or higher discount.

USDC peer-to-peer vs. USD/CNY. Source: OKX

After peaking at 4% in late January, the USDC premium indicator in Asian markets has declined to a neutral 2%. The metric has since stabilized at a modest 2.5% premium, which should be interpreted as positive considering the recent regulatory FUD.

BTC’s futures premium stuck even after price rejected at $25,000

Bitcoin's quarterly futures are the preferred instruments of whales and arbitrage desks. Due to their settlement date and the price difference from spot markets, they might seem complicated for retail traders. However, their most notable advantage is the lack of a fluctuating funding rate.

These fixed-month contracts usually trade at a slight premium to spot markets, indicating that sellers are requesting more money to withhold settlement longer. Consequently, futures markets should trade at a 5% to 10% annualized premium on healthy markets. This situation is known as contango and is not exclusive to crypto markets.

Bitcoin 2-month futures annualized premium. Source: Laevitas.ch

The chart shows traders flirting with the neutral sentiment between Feb. 19 and Feb. 24 as the Bitcoin price held above $23,750. However, the indicator failed to enter the neutral-to-bearish 0% to 5% area as additional regulatory uncertainty was added, especially after Gensler's remarks on Feb. 23. As a result, it became clear that pro traders were not comfortable with Bitcoin price breaking above $25,000.

Related: Is the SEC’s action against BUSD more about Binance than stablecoins?

Weak economic data shifted control to the bulls

Since Feb. 25, Bitcoin price has gained 4.5%, indicating that the impact of the regulatory newsflow has been limited. More importantly, the global stock market reacted positively on Feb. 27 after the U.S. Commerce Department reported durable goods orders down 4.5% in January versus the previous month. This data added pressure for the U.S. FED to reduce its interest rate hike program earlier than expected.

Since Bitcoin's 50-day correlation with the S&P 500 futures presently stands at 83%, cryptocurrency traders are more inclined to support risk asset prices strengthening throughout the week. A correlation indicator above 70% indicates that both assets are moving in tandem, meaning the macroeconomic scenario is likely playing a pivotal role in determining the overall trend.

Unless there's added pressure from regulators or conflicting economic data, odds favor Bitcoin bulls considering the BTC futures and Asian stablecoin metrics.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Hong Kong’s crypto ambition gets subtle nod from Beijing: Report

While China has cracked down on cryptocurrencies in the mainland, it’s apparently taking a softer approach to Hong Kong’s crypto hub aspirations.

Hong Kong’s ambition of becoming a cryptocurrency hub is reportedly seeing subtle support from the Chinese government, in what could be seen as a contrast to the mainland’s hard-line anti-crypto stance. 

In October last year, the government of Hong Kong floated the idea of introducing its own bill to regulate crypto and allow retail investors to “directly invest into virtual assets” that could possibly be in contrast to China’s widespread crypto ban.

According to people familiar with the matter, Beijing officials have not been brazenly opposed to the idea. According to a Feb. 20 Bloomberg report, it is understood that representatives from the China Liaison Office have been frequenting Hong Kong crypto gatherings seeking to understand what’s going on.

So far, their encounters with Beijing officials on the matter have been friendly, according to those familiar, which is being perceived by local crypto business operators that Beijing — albeit very subtly — may be open to using Hong Kong as a testbed for crypto.

Hong Kong is a Special Administrative Region of China, allowing it to have its own laws and governance. The former British colony was transferred back to China in 1997 following a guarantee from Beijing there would be no Chinese interference with the region’s economic and political systems for 50 years, known as the “one country, two systems” principle.

National People’s Congress member and digital asset lawyer Nick Chan was quoted as saying that as long as there are no violations of “the bottom line, to not threaten financial stability in China,” then the city is free to undertake its own pursuits.

Related: Crypto’s next bull run will come from the East: Gemini co-founder

On Feb. 20, Hong Kong’s Securities and Futures Commission outlined a new crypto license regime that proposed that all centralized exchanges that operate in the region must be licensed with the regulator.

It also proposed allowing retail traders access to licensed cryptocurrency trading platforms, saying public feedback highlighted that denying access to crypto markets may push Hong Kongers to trade on unregulated overseas platforms.

The new regulatory push has spurred many crypto businesses to seek expansion into the city. Most recently the exchange Huobi Global said it would seek a local license and plans to open a new Hong Kong-only exchange with a focus on institutional and high-net-worth individuals.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Crypto’s next bull run will come from the East: Gemini co-founder

Gemini co-founder Cameron Winklevoss believes the next crypto bull run will come from Asia, while America has two options — embrace crypto or be left behind.

Crypto's next bull run will start in Asia, according to Cameron Winklevoss, an American investor, and co-founder of crypto exchange Gemini.

His comments have come amid an increase in enforcement action and looming crackdowns from United States regulators, including the Securities and Exchange Commission (SEC).

“My working thesis atm is that the next bull run is going to start in the East,” said Winklevoss in a Twitter post on Feb. 19.

"It will be a humbling reminder that crypto is a global asset class and that the West, really the US, always only ever had two options: embrace it or be left behind.”

"It can't be stopped. That we know," he added.

According to Chainalysis, Central & Southern Asia and Oceania (CSAO) was the third largest cryptocurrency market in its index for 2022. Citizens from these areas received $932 billion in cryptocurrency value from July 2021 to June 2022.

CSAO was also home to seven of the top twenty countries in 2022's index: Vietnam (1), the Philippines (2), India (4), Pakistan (6), Thailand (8), Nepal (16), and Indonesia (20).

In his Twitter thread, Winklevoss saidthat governments who fail to offer clear rules and sincere guidance on crypto will be "left in the dust," and miss out on "the greatest period of growth since the rise of the commercial Internet,” adding:

"And it will mean missing out on shaping and being a foundational part of the future financial infrastructure of this world (and beyond).”

Winklevoss is neither the first, nor last, to suggest that the United States' approach to crypto will drive away the industry, or that Asia could kick off the next crypto growth cycle.

Coinbase CEO and co-founder Brian Armstrong said the stringent actions from U.S. regulators, including the SEC, could further drive crypto businesses offshore.

Meanwhile, an independent market analyst on Twitter — known as GCR — has also prophesied that "China, (and Asia in general) will fuel the next run," in a Jan. 8 post to their 147,300 followers.

"It will take quite some time to melt Western cynicism towards this space, but the East is ascending and yearning to flex."

Arthur Hayes, the former CEO of crypto derivatives giant BitMEX, made a prediction last October that the next bull run will start when China moves back into the market and went one step further to say Hong Kong has a vital part to play in this process.

Hayes argued that Hong Kong might become the testing ground for Beijing to experiment with crypto markets and act as a hub for Chinese capital to find its way into the global crypto markets.

At the time, he said "China has not left crypto — it has just been dormant."

Related: Hong Kong wants to become crypto hub despite industry crisis

Earlier this year, Hong Kong's financial secretary, Paul Chan made a Jan. 9 speech at the POW'ER Hong Kong Web3 Innovators Summit, where he revealed lawmakers passed legislation to set up a licensing system for virtual asset service providers in December.

As a result of the changes in legislation, a "Chinese Coins Pump" narrative has been gaining traction as speculation grows over whether the regulatory easements in Hong Kong will lead to a massive surge for Asian-based crypto tokens. 

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Bulgarian Businessman Loses Half a Million Dollars to Call Center Crypto Fraud

Bulgarian Businessman Loses Half a Million Dollars to Call Center Crypto FraudA Bulgarian investor has lost a large amount of money to fraudsters who convinced him he was putting cash into cryptocurrency. The scam operated through a call center in what is becoming an established scheme for extracting money from victims lured with promises of quick profits on stock and crypto markets. Defrauded Bulgarian Crypto Investor […]

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Sri Lanka against Bitcoin adoption, rejects Draper’s anti-corruption pitch

Central bank Governor Nandalal Weerasinghe believes that adopting decentralized cryptocurrencies would worsen the country’s economic situation.

On a recent visit to Sri Lanka, American billionaire Tim Draper pitched the idea of adopting Bitcoin (BTC) as a legal tender to fight against the corruption that contributed to hyperinflation in the island country. However, a key Sri Lankan authority — central bank Governor Nandalal Weerasinghe — believed doing so would worsen the country’s economic situation.

Taking time from a TV shoot in Sri Lanka, Draper met President Ranil Wickremesinghe and Weerasinghe to recommend Bitcoin as a viable option for getting out of financial problems.

Tim Draper in Sri Lanka speaking about economic development. Source: YouTube

During the meeting, Draper pointed out a key concern staring right at Sri Lanka:

“Have you seen Sri Lanka in the news? It’s known as the corruption capital. A country known for corruption will be able to keep perfect records with the adoption of Bitcoin.”

As he recommended using “decentralized currency” to the head of Sri Lanka’s central bank, he received a short “we don’t accept” reply. Weerasinghe further stated:

“Adoption of 100% Bitcoin won’t be a Sri Lanka reality ever.”

Instead, Weerasinghe believed that having Sri Lanka’s own fiat currency was critical for monetary-policy independence and would ensure efficient inclusion and disburse electronic welfare payments.

“We don’t want to make the crisis worse by introducing Bitcoin,” Weerasinghe concluded.

Related: Australia introduces classification for crypto assets

MicroStrategy, a software analytics company co-founded by Michael Saylor, shared plans to continue offering BTC trading services despite incurring an unrealized loss of $1.3 billion in 2022.

During a Feb. 2 earnings call, MicroStrategy’s chief financial officer, Andrew Kang, said:

“We may consider pursuing additional transactions that may take advantage of the volatility in Bitcoin prices, or other market dislocations that are consistent with our long-term Bitcoin strategy.”

According to Kang, MicroStrategy held 132,500 BTC (worth $1.84 billion) as of Dec. 31, 2022. Of the lot, 14,890 BTC were held directly by the business and the rest by its subsidiary MacroStrategy.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Bitcoin’s big month: Did US institutions prevail over Asian retail traders?

There may be no single reason for BTC’s 39% January price gain, but some suspect institutional investors. Can their impact be quantified, though?

Bitcoin experienced the second-strongest January in its history — and the best since 2013 — rising nearly 40% amid wide reports that institutional investors were back on board.

Zhong Yang Chan, head of research at CoinGecko, told Cointelegraph that there were “net institutional inflows into digital asset funds in January 2023, particularly in the last two weeks, with Bitcoin the largest beneficiary.”

Meanwhile, a Jan. 30 CoinShares blog noted that the total assets under management in digital asset investment products — a good gauge of institutional participation — had risen to $28 billion, led by Bitcoin (BTC), which was up 43% from November 2022’s low point in the current cycle.

The reasons for this bullishness varied depending on whom one asked, ranging from macro factors like a pause in inflation growth to more technical reasons like a squeeze on BTC short sellers. Elsewhere, a research report from Matrixport noted that institutional investors are “not giving up on crypto,” further suggesting that as much as 85% of Bitcoin buying in January was the result of U.S. institutional players. The cryptocurrency services provider added that many investors had used the U.S. Jan. 12 Consumer Price Index print “as a confirmation signal to buy Bitcoin and other crypto assets.”

Almost all gains were during U.S. market hours

But how did Matrixport come to attribute up to 85% of monthly BTC growth to U.S. institutional investors? As the Singapore-based firm explained in its recent market overview: “The most astonishing statistic is that almost all of the +40% year-to-date rally in Bitcoin has happened during US market hours. [...] That’s 85% of the Bitcoin move.” Matrixport continued:

“We have always worked with the assumption that Asia is driven by retail investors, and the US is driven by institutional investors.”

So, if Bitcoin’s market price rises during U.S. market trading hours but falls during Asian trading hours, as seemed to be happening in January, can one assume that U.S. institutional investors were buying Bitcoin while Asian retail traders were selling it — a sort of yin-and-yang action? Apparently so. During U.S. trading hours, “institutions, aka ‘stable hands,’” were taking advantage of the dips, added Matrixport.

Recent: State of play: Decentralized domain services reflect on industry progress

Is this really what drove BTC’s price upward in January? “In my personal opinion, the assumption that Asian retail and U.S. institutional investors are two main drivers of net Bitcoin flows is valid,” Keone Hon, co-founder and CEO at Monad Labs — which developed the Monad blockchain — told Cointelegraph. There are other market participants, of course; but when looking at flows, “irregular ones” have the largest impact, continued Hon:

“In the current market, institutional players represent a potentially new — or renewed — source of demand similar to early 2021. Meanwhile, on the retail side, Asia-centric exchanges like Binance, Bybit, Okex and Huobi represent a majority of spot volume and nearly all of the derivatives volume.”

Others, though, aren’t so sure. “There is no way to confirm that U.S. markets are driven by institutional investors and Asian markets are driven by retail players since we don’t have data related to the identity of traders,” Jacob Joseph, research analyst at CryptoCompare, told Cointelegraph.

Granted, there is a “sentiment” or belief that large retail interest exists in Asia, “especially in Korea, as KRW represents the fourth-largest trading pair after USDT, BUSD and USD,” continued Joseph, but it can’t really be quantified.

Still, he acknowledged that the Matrixport report was interesting, adding, “Our data shows that more than two-thirds of the BTC returns in January can be attributed to the U.S. market hours, and our historical hourly data also shows that an above-average volume is traded during these hours.”

Justin d’Anethan, institutional sales director at the Amber Group — a Singapore-based digital asset firm — told Cointelegraph, “I don’t really have metrics to say whether 85% is on point or not.” He was inclined to see the January rally as broad and macro-driven, especially with inflation heading lower and expectations that the U.S. Federal Reserve won’t keep raising rates. He added:

“You can see equities, gold, real estate, and, yes, crypto gaining. That’s probably driven by large institutions and smaller investors alike, especially when FOMO kicks in.”

D’Anethan also looked at Coinbase’s recent premium index, “which is in the green but not massively. That’s typically a good metric to see if bigger American entities are on a shopping spree. Right now, it looks muted, positive, but probably just reallocating cash that was sitting on the sidelines.”

Jacob said that a better way to gauge U.S. institutional activity is to look at exchanges “that cater their services solely to them.” Along these lines, “CME Group, the largest institutional exchange in crypto, saw its monthly volume rise 59% in January,” while LMAX Digital, another institutional-focused exchange, “also saw its trading volumes rise 84.1%, higher than the average increase in trading volume on other exchanges.”

Then, too, who’s to say Asian retail traders aren’t operating during U.S. market hours? Chan, for instance, acknowledged that while the markets “do tend to move more during U.S. hours,” CoinGecko believes that this is “more a reflection of the outsized influence that U.S. monetary policy currently has on the crypto market and broader financial markets. Traders are most active when they believe markets are volatile, and in the current environment, Asian traders may have also gravitated toward ‘Fed watching’ to catch potential market movements.”

Chris Kuiper, director of research at Fidelity Digital Assets, told Cointelegraph that there isn’t a single event or catalyst that one can point to, to explain Bitcoin’s recent price movement. But to him, “It’s not surprising given the conditions that have been forming — namely, the increasing amount of illiquid coins, coins that haven’t moved in over a year — and the continued outflow of coins from exchanges.” Both factors make for a lower supply of BTC “and create conditions ripe for higher moves.”

Kuiper also cited the futures and derivatives market as a factor in BTC’s climb, “with a large amount of shorts getting liquidated over the past few weeks.” D’Anethan, too, mentioned “short-sellers getting squeezed” as a possible driver. “In itself, it’s not a cause for [prices] going up, but when things do rise, it accelerates it.”

Looking ahead

Be that as it may, if one agrees that January held some promise for Bitcoin on the institutional front, can one necessarily assume that it will persist through 2023?

“As the market gains clarity on which players avoided contagion, we’ll see an uptick in new entrants that were sidelined during the back half of last year, particularly as innovative custody agreements emerge to address the major pain points of the recent collapses,” David Wells, CEO of digital asset trading platform Enclave Markets, told Cointelegraph.

Recent: What crypto hodlers should keep in mind as tax season approaches

More needs to be done to maintain institutional momentum, the executive stated. “To really attract institutional flow, crypto markets will need to build more sophisticated products that allow for proper hedging and risk management,” added Wells. He’s optimistic providers will rise to the challenge, however.

It appears that inflation may have peaked, and many expect the U.S. Fed and perhaps other central banks to slow the pace at which they tighten interest rates, said Kuiper. While that does not necessarily portend rising risk-asset prices, “institutions and other asset allocators in the longer-term may once again turn to Bitcoin if central banks ease aggressively as they have done in the past,” he concluded.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

Bitcoin aims for $25K as institutional demand increases and economic data soothes investor fears

Strong corporate earnings and investors’ anticipation of a Federal Reserve pivot are helping to cement the case for risk assets like Bitcoin.

Bitcoin (BTC) price broke above $22,500 on Jan. 20 and has since been able to defend that level — accumulating 40.5% gains in the month of January. The move accompanied improvements in the stock market, which also rallied after China dropped COVID-19 restrictions after three years of strict pandemic controls.

E-commerce and entertainment companies lead as the year-to-date market performers. Warner Bros (WBD) added 54%, Shopify (SHOP) 42%, MercadoLibre (MELI) 41%, Carnival Corp (CCL) 35% and Paramount Global (PARA) managed a gain 35% so far. Corporate earnings continue to attract investors' inflow and attention after oil-producer Chevron posted the second-largest annual profit ever recorded, at $36.5 billion.

More importantly, analysts expect Apple (AAPL) to post a mind-boggling $96 billion in earnings for its 2022 on Feb. 2. The $2.3 trillion tech company results vastly surpasses the $67.4 billion profit that Microsoft (MSFT) reported in 2022. Strong earnings also help to validate the current stock valuations, but they do not necessarily guarantee a brighter future for the economy.

A more favorable scenario for risk assets came largely from a decline in leading economic indicators, including homebuilder, trucking surveys and contracting Purchasing Managers Index (PMI), according to Evercore ISI's senior managing director, Julian Emanuel.

According to the research from financial services firm Matrixport, American institutional investors represent some 85% of the recent purchasing activity. This means large players are "not giving up on crypto." The study considers the returns occurring during U.S. trading hours but expects the outperformance of altcoins relative to Bitcoin.

From one side, Bitcoin bulls have reasons to celebrate after its price recovered 49% from the $15,500 low on Nov. 21, but bears still have the upper hand on a larger time frame since BTC is down 39% in 12 months.

Let's look at Bitcoin derivatives metrics to better understand how professional traders are positioned in the current market conditions.

Asia-based stablecoin demand approaches the FOMO region

The USD Coin (USDC) premium is a good gauge of China-based crypto retail trader demand. It measures the difference between China-based peer-to-peer trades and the United States dollar.

Excessive buying demand tends to pressure the indicator above fair value at 100%, and during bearish markets, the stablecoin's market offer is flooded, causing a 4% or higher discount.

USDC peer-to-peer vs. USD/CNY. Source: OKX

Currently, the USDC premium stands at 3.7%, down from a 1% discount two weeks prior, indicating much stronger demand for stablecoin buying in Asia. The indicator shifted gears after the 9% rally on Jan. 21, causing excessive demand from retail traders.

However, one should dive into BTC futures markets to understand how professional traders are positioned.

The futures premium has held a neutral stance since Jan. 21

Retail traders usually avoid quarterly futures due to their price difference from spot markets. Meanwhile, professional traders prefer these instruments because they prevent the fluctuation of funding rates in a perpetual futures contract.

The three-month futures annualized premium should trade between +4% to +8% in healthy markets to cover costs and associated risks. Thus, when the futures trade below such a range, it shows a lack of confidence from leverage buyers — typically, a bearish indicator.

Bitcoin 3-month futures annualized premium. Source: Laevitas.ch

The chart shows positive momentum for the Bitcoin futures premium after the basis indicator broke above the 4% threshold on Jan. 21 — the highest in five months. This movement represents a drastic change from the bearish sentiment presented by the futures' discount (backwardation) present until late 2022.

Related: Bitcoin price is up, but BTC mining stocks could remain vulnerable throughout 2023

Traders are watching to see if the Fed broadcasts plans to pivot

While Bitcoin’s 40.5% gain in 2023 look promising, the fact that the Nasdaq tech-heavy index rallied 10% in the same period raises suspicions. For instance, the street consensus is a pivot on the Federal Reserve (FED) quantitative tightening policy at some point in 2023 — meaning interest rates would no longer be increased.

Bitcoin derivatives and stablecoin demand exited the panic levels but if the FED's expected soft landing takes place, the risk of a recessionary environment will limit stock markets' performance and hurt Bitcoin's “inflation protection” appeal.

Currently, the odds favor bulls as leading economic indicators show a moderate correction — enough to ease the inflation but not especially concerning as solid corporate earnings confirm.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

‘Surgical removal’ of crypto will only weaken USD dominance, commentators say

$1.48B in Bitcoin options expire on Friday — Will BTC hold $22K?

BTC price has started to correct, and with $1.48 billion in Bitcoin options expiring on Jan. 27, traders are watching to see if the price holds above $22,000.

Bitcoin investors' sentiment improved after signals pointing to lower inflationary pressure suggested that the U.S. Federal Reserve could soon move away from its interest rate increase and quantitative tightening. Commonly known as a pivot, the trend change would benefit risk assets such as cryptocurrencies.

On Jan. 22, the China-based peer-to-peer trades of USD Coin (USDC) reached a 3.5% premium versus the United States dollar, indicating moderate FOMO by retail traders. This level is the highest in more than 6 months, suggesting excessive cryptocurrency buying demand has pressured the indicator above fair value.

The all-time high on the 7-day Bitcoin hash rate — an estimate of processing power dedicated to mining — also supported the bullish momentum. The indicator peaked at 276.9 exo-hash per second (EH/s) on Jan. 19, signaling a reversion of the recent weakness caused by miners facing financial difficulties.

Despite the bears' best efforts, Bitcoin has been trading above $20,000 since Jan. 14 — a movement that explains why the $1.48 billion Bitcoin monthly options expiry will vastly benefit bulls despite the recent failure to break the $23,200 resistance.

Bulls were too optimistic, but remain well positioned

Bitcoin's latest rally on Jan. 20 caught bears by surprise, as a mere 6% of the put (sell) options for the monthly expiry have been placed above $22,000. Thus, bulls are better positioned even though they set nearly 40% of their call (buy) options at $23,000 or higher.

Bitcoin options aggregate open interest for Nov. 25. Source: CoinGlass

A broader view using the 1.15 call-to-put ratio shows more bullish bets because the call (buy) open interest stands at $790 million against the $680 million put (sell) options. Nevertheless, most bearish bets will likely become worthless as Bitcoin is up 36% in January.

If Bitcoin's price remains above $22,000 at 8:00 am UTC on Jan. 27, only $38 million worth of these put (sell) options will be available. This difference happens because there is no use in the right to sell Bitcoin at $21,000 or $22,000 if it trades higher on expiry.

Bears could secure a $595 million profit

Below are the four most likely scenarios based on the current price action. The number of options contracts available on Jan. 27 for call (bull) and put (bear) instruments varies, depending on the expiry price. The imbalance favoring each side constitutes the theoretical profit:

  • Between $20,000 and $21,000: 12,800 calls vs. 7,100 puts. The net result favors bulls by $115 million.
  • Between $21,000 and $22,000: 17,600 calls vs. 2,800 puts. The net result favors bulls by $320 million.
  • Between $22,000 and $23,000: 21,200 calls vs. 1,100 puts. Bulls remain in control, profiting $455 million.
  • Between $23,000 and $24,000: 25,300 calls vs. 0 puts. Bulls completely dominate the expiry, racking up $595 million.

This crude estimate considers the call options used in bullish bets and the put options exclusively in neutral-to-bearish trades. Even so, this oversimplification disregards more complex investment strategies.

Related: Bitcoin due for shake-up vs. gold, stocks as BTC price dips under $22.5K

Bitcoin bears need to push the price below $21,000 on Jan. 27 to greatly reduce their losses. However, Bitcoin bears recently had $335 million worth of liquidated leveraged short futures positions, so they likely have less margin required to exert power in the short term.

Consequently, the most probable scenario for the January monthly BTC options expiry is the $22,000 or higher level, providing a decent win for bulls.

Bitcoin (BTC) price faced fierce resistance at $23,000 after an 11% rally on Jan. 20, but that was enough to cause $335 million in liquidations for short positions using futures contracts. The 36% year-to-date gain to $22,500 caused bears to be ill-prepared for the $1.48 billion monthly options expiry on Jan. 27.

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This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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