For the third week, bitcoin (BTC) remains locked in a price range between $90,000 and $100,000, punctuated only by Dec. 5's short-lived rise into six figures. This indecisive price action might have left traders feeling uninspired, with two key reasons holding back the upside.
First, the influx of liquidity into the crypto market through channels like spot exchange-traded funds (ETFs) has significantly slowed, taking the wind out of the bullish momentum.
The weekly rate of change in the so-called market liquidity impulse index, which tracks stablecoin mints, inflows into BTC ETFs and changes in futures market parameters, has more than halved to $7 billion from highs above $15 billion seen early last month, according to data tracked by 10x Research.
"This slowdown in liquidity growth may partially explain why bitcoin is struggling to sustain levels above $100,000," Markus Thielen, founder of <a href="https://10xresearch.co/" target="_blank">10x Research</a>, said in a note to clients Wednesday.
The liquidity indicator has chalked out lower highs of late, diverging bearishly from BTC's price.
Stablecoins are cryptocurrencies pegged to an external reference like the U.S. dollar and are widely used to fund crypto purchases. Meanwhile, ETFs are preferred investment vehicles for those looking to take exposure to the cryptocurrency without owning it. The same can be said about CME's cash-settled futures.
The other reason, overlooked by most pundits, is the slowdown in the uptrend in shares in chipmaker Nvidia (NVDA), the world's biggest company. Since the debut of ChatGPT in late 2022, NVDA has emerged as a bellwether for all things AI and risk assets in general.
BTC and NVDA bottomed out in late 2022 and boasted a <a href="https://www.coindesk.com/markets/2024/03/15/bitcoins-correlation-to-nvidia-strongest-in-over-a-year#:~:text=The%2090%2Dday%20and%2052%2Dweek%20correlation%20coefficient%20between%20bitcoin,bubble%20that%20could%20soon%20burst." target="_blank">strong positive correlation</a> since then, barring the summer, when supply overhang fears kept BTC from tracking NVDA higher. As of writing, the <a href="https://www.macroaxis.com/invest/pair-correlation/NVDA/BTC.CC/NVIDIA-vs-Bitcoin#:~:text=The%203%20months%20correlation%20between,assuming%20nothing%20else%20is%20changed." target="_blank">three-month correlation</a> between the two was 0.6.
Analysts at TheMarketEar believe BTC, with its post-U.S. election surge from $70,000 to $100,000, has caught up with NVDA
"Same psychology; winners like winners. BTC has 'caught up' to NVDA. They have little fundamentals in common but are driven by similar psychology," analysts at TheMarketEar said in a note to clients, adding that NVDA is one of the few stocks that has outperformed BTC this year and over the last five years.
While BTC has risen 130% this year, NVDA has gained 172%, according to data source TradingView.
NVDA's uptrend, however, has run out of steam since mid-November, with prices now teasing a bearish reversal pattern for heads and shoulders. Besides, the one-year put-call skew now shows calls trading at par with puts, exhibiting a neutral sentiment as opposed to a strong call (bullish) bias early this year, according to data source <a href="https://marketchameleon.com/Overview/NVDA/VolatilitySkew/" target="_blank">Market Chameleon</a>.
That said, bullish excesses have been crowded out from the crypto market, as noted in Tuesday's edition of the <a href="https://www.coindesk.com/daybook-us/2024/12/10/crypto-daybook-americas-banks-favor-king-dollar-as-btc-tug-of-war-rages" target="_blank">Crypto Daybook Americas</a>. With the market normalized to more healthy leverage levels, we could see BTC having another go at the $100,000 mark, but sustainability of the breakout likely depends on liquidity inflows and broader risk sentiment.
