Ahead of the Curve - January 17

A great recovery and a hated rally. After experiencing a seven-day return of 23% fueled by a substantial short squeeze, BTC has recovered to pre-FTX levels. We anticipate that volatility will subside, partly due to developments in Binance's perp.

The last seven days have been remarkably strong and lively in crypto. BTC has seen a massive 23% gain and a growth in the market dominance of 2.2 percentage points over the last week as BTC leads the market recovery. A positive reaction to the Thursday CPI print of -0.1% was the primary catalyst behind the surge. Still, BTC faced strength also before the CPI release, seeing 13 green trading days in the first 16 trading days of the year amidst falling correlations to U.S. equities. BTC has shown resilience and has recovered to prices from before the FTX collapse, a promising development.

Short-term, we note that the momentum seems overextended. Last week saw seven consistent days of green returns for the first time since March 2022, and the RSI momentum indicator has pushed toward extreme highs. The recent surge has predominantly been fueled by a short squeeze led by consistent aggressive shorting. BTC’s push above $20,000 has been followed by a stabilizing open interest, suggesting that short traders have grown cautious, which may lead prices to stabilize in the short term.

We cover the changing momentum and structural changes in BTC's derivatives in this week's edition of "Ahead of the Curve".

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