In an impressive turn of events, the crypto market experienced a significant upswing today, with Bitcoin leading the charge by scaling $30,000 for the first time since April 18. This surge not only marked a momentous milestone but also solidified Bitcoin’s year-over-year gain of 36%, despite China’s dire warning in June 2022 that Bitcoin was heading towards obsolescence.
The rally sparked a wave of short liquidations across the market, resulting in a staggering $180 million in just 24 hours on June 21. Moreover, this surge in crypto prices is effectively narrowing the appreciation gap between equities and the cryptocurrency market, which widened after the Federal Reserve halted interest rate hikes.
That said, several factors have been cited as being responsible for the recent spike in the market. They include:
Factor 1: Derivatives Propelling Bitcoin Rally
According to a recent post by an analyst at CryptoQuant, the recent surge in Bitcoin’s price can be primarily attributed to derivatives trading. The key metric of interest is the “trading volume ratio,” which compares the trading volume of Bitcoin on spot exchanges with that of derivative exchanges.
During this period, the trading volume ratio for Bitcoin experienced a sharp decline in March and has since remained relatively stagnant at low levels. This suggests that there has been limited activity in the spot market compared to the volumes observed on derivative exchanges.
This observation indicates that the recent rally may have been fueled by derivatives rather than the spot market. Historically, rallies accompanied by rising spot trading volumes have shown greater sustainability over extended periods.
Factor 2: Bitcoin ETF Speculation Sparks Market Optimism
The speculation surrounding the approval of the first Bitcoin exchange-traded fund (ETF) in the United States has contributed to the buoyancy of the crypto market. The excitement reached new heights following BlackRock’s submission of a Bitcoin spot ETF application to the Securities and Exchange Commission (SEC) on June 16.
As the world’s largest asset manager, overseeing a staggering $9.5 trillion in assets, BlackRock has a strong track record with ETFs, having faced only one rejection out of 576 applications. Market analyst Lark Davis even suggests that, if approved, BlackRock could potentially acquire all available Bitcoin across various crypto exchanges.
It’s worth noting that the SEC has previously rejected all Bitcoin ETF applications, including those from prominent asset managers like VanEck, Ark Invest, and Bitwise.
Factor 3: Renewed Bullish Sentiment and Implications of Fed’s Pause on Interest Rates
The prevailing sentiment in the crypto market has turned bullish, as reflected by the switch from majority short positions to majority long positions in Bitcoin futures trading. Coinglass data reveals that 54.24% of traders are now long on Bitcoin, with a ratio of 1.2 compared to BTC shorts.
Additionally, a decrease in spot volume and a net outflow of Bitcoin from exchanges have contributed to the potential for increased price volatility. When Bitcoin experiences a greater net outflow from exchanges, sell pressure diminishes, amplifying the impact of short liquidations on its price.
Meanwhile, the recent decision by the Federal Reserve, announced on June 14, to pause interest rate hikes for June has further bolstered bullish sentiment. Although this move was expected by investors, the crypto market initially did not mirror the optimistic momentum seen in equities. However, the Bitcoin Fear and Greed Index has now reached a three-month high, signaling that investors are increasingly inclined to take on riskier assets.
Bitcoin Price Action
At the time of writing, BTC was trading just under the $30K mark at $29,970 after backpedaling from an intraday surge to the $30,777 high. The benchmark cryptocurrency broke out of a longstanding bearish channel on June 20, a day before the remarkable rally past the $30K mark. Barring the supporting factors highlighted here, this breach above the channel played a key role (technically) in the recent bullish rally.
Away from the excitement, many traders are now watching to see how Bitcoin holds up following the rally. A sustained stand above the $29,000 area in the coming days should spell a healthy sentiment for the cryptocurrency, cementing its gains and fomenting a rerun at the $31K resistance. On the flip side, a clear rejection from the current levels should easily push BTC back into the bearish channel over the coming days.
BTC Statistics Data
Current Price: $29,970
Market Cap: $583B
Circulating Supply: 19.4M
Total Supply: 21M
Market Ranking: #1
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