The current rally of BTC and some altcoins could indicate the the market is completing its purge even if the liquidity problems faced by Digital Currency Group and Genesis Trading are not resolved.
The stock market is also showing green candles with the Dow Jones Industrial (DJIA) posting a 0.94% gain and the S&P 500 up 1%. With the month of November employment report releasing on Dec. 2, stock traders will be looking for strong growth to show market resilience, which would drive prices higher. upper.
As reported by CointelegraphBitcoin will likely remain closely correlated to US stocks and exhibit the same price momentum.
Here are three reasons Bitcoin price rallied after a week of pain and details of the main drivers of growth.
Bitcoin Open Interest Remains skewed towards short traders
Since the price of Bitcoin crashed to $17,600 on June 18, open interest in BTC futures has increased. Large price swings in the Bitcoin price could trigger another liquidation event, but whether the move would be up or down is unclear.
Many traders agree that if the Federal Reserve were to pivot on its current policy of quantitative tightening and interest rate hikes, the price of BTC could skyrocket and liquidate a significant portion of the short interest on the futures contracts. term.
The FTX crash triggered a wave of sell-offs that sent the Bitcoin price plummeting. Data shows that $549 million of cross-crypto longs were liquidated on Nov. 7, pushing the price of Bitcoin below $16,000.
Conversely, short liquidations directly contribute to driving up the price of Bitcoin by forcing automated buying pressure. The current rally sees short open interest gain momentum, which may further help Bitcoin price.
Longer-term data favors Bitcoin, market analysts say
Investor confidence in the crypto market may also increase due to their belief that the US Federal Reserve may roll out smaller interest rate hikes over the next two months.
At the Fed statementthe possibility of a policy change remains open:
“To achieve a monetary policy stance tight enough to bring inflation down to 2% over time. In determining the pace of future increases in the target range, the committee will consider the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
According MacroMicroa company that publishes investor consensus estimates of expected changes in interest rates, shows that interest rates could be lower than expected in the near future.
The chart points to a possible slowdown in interest rate hikes. Public sentiment shows that future rates could fall and investors believe this has created the possibility of a broad rally in the crypto market.
The S&P 500 and Nasdaq provide a general overview of the economy in general. Currently, Bitcoin, the Nasdaq, and the S&P 500 share a high correlation coefficient.
Therefore, if interest rates ease and the economy expands, Bitcoin could reverse course should a similar reversal take place in stock markets. The better the macro climate, the better for Bitcoin price.
Bitcoin Hits Yearly Low and Shows Signs of Oversold
The Relative Strength Index (RSI) is a popular technical analysis for measuring whether Bitcoin is overbought or oversold. When the RSI is below 30, Bitcoin is considered oversold. Historically, when the RSI crosses below 30, Bitcoin sees a strong upward price bounce.
According to Ray Salmond, Head of Markets at Cointelegraph:
“From a technical analysis perspective, the market (BTC in particular) has been selling heavily and generally when the Relative Strength Index (RSI) dips to and below 30, it is a sign of oversold conditions. Weekly RSI, one will notice that the indicator has a high frequency of bouncing from the oversold zone and the price of the asset follows. It remains to be seen if Bitcoin regaining the $16,000 level turns out to be a bullish trap, before the price continues to decline.”
While the price of Bitcoin is showing some near-term bullish momentum, the larger challenges of rising interest rates, shrinking crypto market inflows and liquidity, and the threat of insolvency contagion from FTX affecting the entire market continue to weigh on the price of BTC.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.