Data shows the Bitcoin Coinbase Premium Gap has turned negative recently. Here's what this could mean for the asset's price.
The Bitcoin price has seen a strong recovery over the past few days, driven largely by the US Federal Reserve (Fed) announcing a smaller-than-expected interest rate cut.
This news has caused a wave of optimism in the crypto market, with many traders believing that the worst of the bear market may finally be behind them.
However, one metric that has been closely followed by traders this year is now showing a sign that could potentially be bearish for the asset.
This metric is known as the “Coinbase Premium Gap,” and it essentially tracks the difference between the price of Bitcoin as listed on Coinbase (USD pair) and the price of BTC on Binance (USDT pair).
When the value of this metric is greater than zero, it means that the price of the asset listed on Coinbase is higher than on Binance. Such a trend implies that users on the former are participating in a higher amount of buying or a lower amount of selling than users on the latter.
On the other hand, the indicator being negative suggests the buying pressure on Coinbase may be lower than on Binance as BTC is trading at a cheaper rate there.
Now, a positive Coinbase Premium Gap has been observed for a while now. As you can see from the below chart, the metric started turning positive around the time when Bitcoin began its recovery from the lows of $32k.
Since then, the indicator has remained in the positive territory, though its value has crashed into the negative zone today. This could potentially be a bearish sign for the leading digital asset.
To understand why this metric is important, we also need to understand how the two exchanges—Coinbase and Binance—operate in the Bitcoin market.
Coinbase is the primary platform of US-based investors, especially the large institutional entities, whereas Binance caters more towards the rest of the world.
So, when the Coinbase Premium Gap is positive, it usually suggests that US-based investors or institutions are buying more Bitcoin than traders on Binance.
Since institutional investors tend to trade in large volumes, their buying activity can have a significant impact on the overall price of BTC in the spot market.
Hence, a positive Coinbase Premium Gap has been seen as a bullish indicator for Bitcoin this year.
However, if the metric turns negative and stays there for an extended period, it could be suggesting that US-based investors are now selling their Bitcoin holdings more aggressively than traders on Binance.
This would naturally put a downward pressure on the price of the asset.
It is worth noting, though, that the Coinbase Premium Gap turning negative may not always be bearish for Bitcoin.
For instance, if a large amount of buying is occurring on Binance, it could also cause the price on Coinbase to be left behind.
Since Bitcoin hasn’t seen any significant bearish price action since this trend has developed in the indicator, this scenario may even be the more likely scenario. However, the metric could still be to keep an eye on shortly, as lasting forays in the negative zone have usually proven to be bearish for the price.
If the Coinbase Premium Gap remains negative and BTC continues to be unaffected, then it would imply a shift in the market structure has occurred, with Binance traders taking the lead, something that hasn’t happened this year too often.
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