In general, market commentators say it is a sign of a healthy market when an asset moves slowly or consolidates after an explosive rise. For bitcoin, stabilization after a strong rally to a record high is critical right now due to a crowded futures market. If the bitcoin price continues to rise without a proper pullback, the likelihood of a major long-term squeeze increases in the short term.
Long compression occurs in the futures market when the market is flooded with buyers or long contracts, making the funding price very positive. When the refinancing rate is above 0%, buyers must pay a portion of their position every eight hours as compensation to their short selling counterparty. This mechanism is used by futures exchanges to achieve market equilibrium so that the market does not move in one direction for an extended period of time.
Given the negative impact of imbalances in the futures market, and the fact that the bitcoin futures funding rate has consistently held above 0.1%, ten times the normal rate of 0.01%, a longer consolidation is optimistic for bitcoin. Nevertheless, BTC remains above critical support areas which appear to be located at $44,214 and will act as a key support level for the Wal cluster in the short term.
Where is bitcoin going?
In an interview with Cointelegraph, Guy Hirsch, CEO of eToro in the US, pointed out that Tesla’s $1.5 billion purchase of BTC has taken the market by storm. The news caused a major shift in sentiment, leading many investors to view it as a turning point in the history of the crypto-currency market and how public companies will view crypto-currencies. The news also came as MicroStrategy hosted a workshop with over 1,400 companies to talk about bitcoin.
Hirsch says the synergy between Tesla’s purchase of bitcoins and MicroStrategy raises awareness of the benefits of bitcoin as a store of value and business investment, which will encourage other public companies to make similar announcements. If this trend continues, Hirsch says an increase to $50,000 is possible before the end of the second quarter:
We will likely look to MicroStrategy and Tesla as pioneers of this new way to use corporate money to add value to money rather than hold it, and see it as a turning point not only in the history of bitcoin, but also in the way publicly traded companies act and serve the interests of their shareholders.
Traders are also generally optimistic about the price of bitcoin in the short to medium term. A pseudonymous trader known as Loma said that the relative downtrend in BTC is so thin right now, given the strong market sentiment around BTC. The trader noted that $50k is inevitable, and whether the fall of BTC is somewhat predictable is not a serious matter.
A black swan could theoretically lead to a 30-40% correction in the bitcoin price, as has been the case in previous bullish cycles. However, Bitcoin is experiencing unprecedented buying demand from high net worth investors and institutions that have not been as active in recent years.
The influx of new institutional investors is a key variable that could support BTC’s momentum towards the $50,000 to $70,000 range. The continued growth of liquidity in the traditional financial market continues to catalyze demand for inflation hedges, which includes assets like bitcoin and gold.
Potential bearish case for BTC
The cryptocurrency, known as Varo, said there is a scenario in which bitcoin could experience a possible short-term pullback. The trader said that if BTC tries to break through the $48,000 level, he could see a drop in momentum and a 5-15% decline in the near future.
This is a positive trend for BTC, he says, because it gives access to some liquidity and large buy orders in the low $40,000 range: I was one of the first to call for 52k a week or so ago, and now everyone is euphorically screaming for 50+ while bitcoin struggles with this resistance. It’s not a bear, it just needs more fuel, that’s all.
One fundamental factor that could counteract the potentially bearish market sentiment around bitcoin is reduced selling pressure from miners. Miners have been selling large amounts of BTC over the past two weeks, putting pressure on the short-term trend of the bitcoin price. Since miners are one of the few external sources of selling pressure in the cryptocurrency market, the increased level of selling activity could suppress bitcoin’s upward trend.
Lex Moskovsky, crypto-currency investor and quant trader, has noticed that miners have been reluctant to sell their #Bitcoin over the past two weeks. According to him, either miners expect the price of bitcoin to rise significantly in the near future or they have no BTC to sell in the near future.
Either way, this trend is a positive catalyst for bitcoin that could counter the bearish sentiment surrounding the crypto market and propel BTC to a new all-time high above $50,000.
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