Bitcoin Tie. There are signs that the recent rally may be losing steam.
Bitcoin and other cryptocurrencies were lower on Tuesday after recently pushing to their highest levels in months. While analysts remain bullish on Bitcoin, there are indications that the latest crypto rally may be losing momentum.
The price of
Bitcoin
has fallen less than 1% in the past 24 hours to $24,650, after recently trading above $25,000 – levels above which the largest digital asset has not consistently changed hands since last June. A rally to start 2023 has sent Bitcoin around 50% higher this year, delivering the digital asset out of the depths of a brutal bear market and from multi-year lows, although Bitcoin remains well short of its late 2021 peak near $69,000.
“Bitcoin continues its attempts to break through resistance at $25,000. Volatility was subdued on Monday as the primary driver for it – US stock markets – closed yesterday, said Alex Kuptsikevich, an analyst at brokerage FxPro. “Despite Bitcoin’s failed attempt on consolidating above $25,000, the intraday pullbacks from this resistance are diminishing, indicating a continued buy-the-dip pattern. A break above $25,000 is only a matter of time, potentially opening the door to $28,000.”
While Bitcoin will likely continue to take cues from the stock market, crypto has recently somewhat declined its correlation to
Dow Jones Industrial Average
and
S&P 500.
A tough macro backdrop of high inflation and rising interest rates linked digital assets and stocks over the past year, but the latest crypto wave has far surpassed anything seen in the stock market. Bitcoin’s rally has largely been based on factors endogenous to crypto, including positioning in derivatives markets and technical factors pushing prices higher.
“Massive short liquidations led to the transition” of Bitcoin to $25,000, analysts at crypto exchange Bitfinex wrote in a note, referring to the dynamics of the Bitcoin futures market, which is the most liquid in all of crypto. Shorts are bets against Bitcoin, often taken with borrowed money, and these positions can be forcibly closed or “liquidated” by brokers if the market swings higher. The process can trigger buy orders that exacerbate the rise in prices.
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A rally triggered by short liquidations is representative of gains based on technical, not fundamental, factors. Positioning in the crypto options market also suggests that sentiment has cooled, according to the Bitfinex analysts, who noted that traders place roughly equal value on put and call options – betting that prices will fall or rise, respectively.
Nevertheless, these market trends do not mean that a reversal is due. Quite the opposite: Moderating sentiment and price swings that have also wiped out traders who are “long” Bitcoin — with about $250 million in those bullish positions liquidated in a February 10 rout — could be a sign of a stable market.
“Over the past two weeks, the Bitcoin price has been chasing both overleveraged long positions as well as liquidating overzealous shorts. It hit an eight-month high in the process,” the Bitfinex analysts said. “Historically, this type of price action, where both longs and shorts are wiped out at the same time, has resulted in a range.”
Beyond Bitcoin,
Ether
— the second-largest crypto — fell 1.5% to $1,675. Smaller cryptos, or altcoins, were even deeper in the red, with
Cardano
crumbling 3% and
Polygon
lose 5%. Memecoins were also muted, with
Dogecoin
down 2% and
Shiba Inu
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drop 3%.
Write to Jack Denton at [email protected]
