Market Wrap: Bitcoin Analysts Expect a Short-Squeeze

Bitcoin pulled back on Friday after rising nearly 10% earlier this week. The cryptocurrency was trading around $32,000 at press time and is up about 2% over the past seven days. Ether, the world’s second largest cryptocurrency, is holding above $2,000 and is up about 6% over the past week.

Upside momentum is improving, which could keep crypto buyers active into the weekend. Some analysts expect a short-squeeze to push bitcoin above the 50-day moving average around $34,000 given oversold conditions on the charts.

“For the first time in many weeks we are seeing bullish signs here and expect bitcoin to head towards the upper end of the $30,000-$40,000 range,” wrote Pankaj Balani, CEO of Delta Exchange, in an email to CoinDesk.

Latest prices

Cryptocurrencies:

• Bitcoin (BTC) $32,324.8, -0.05%
• Ether (ETH) $2,026.5, -0.13%

Traditional markets:

• S&P 500: 4411.8, +1.01%
• Gold: $1801, -0.32%
• 10-year Treasury yield closed at 1.281%, compared with 1.263% on Thursday

“On the options front we have seen a good amount of covering between the $35,000-$40,000 strikes for the weekly maturity,” Balani wrote. “For the July expiry there is still decent open interest in the $35,000 strike, which should act as a ceiling for BTC for this month.”

Overall, risk sentiment is improving in traditional and crypto markets as concerns about tighter monetary stimulus wane. On Thursday, the European Central Bank (ECB) pledged to keep interest rates lower for longer and adjusted its policy stance to allow for a slight overshoot of the 2% inflation target.

The ECB announcement along with a broad decline in global government bond yields contributed to higher stock prices over the past week. Aside from the reach for yield, improving sentiment and positive comments from Tesla CEO Elon Musk on Wednesday kept crypto bulls active.

Bitcoin options probability

Bitcoin options traders are pricing an 8% chance of the cryptocurrency rising to a new peak above $64,800 by Dec. 31, according to data source Skew.

Additionally, six-month implied volatility, or investors’ expectations for price turbulence, has dropped to a more than two-month low of 80% at press time, having peaked at 122% on May 17.

That implies investors expect the price consolidation to continue for a while, wrote CoinDesk’s Omkar Godbole.

Short squeeze expected

“If BTC retains the lower range of $30K, shorts will begin to squeeze as BTC moves to the middle point of the range, likely accelerating in the coming days/weeks,” wrote Sashimi Nakamoto on CryptoQuant.

The chart below shows the bitcoin leverage ratio, which is open interest divided by exchange reserves, reaching the highest level since April. The bitcoin funding rate is slightly negative, which indicates higher short interest than long interest, according to Nakamoto.

The funding rate measures the cost to fund long positions in the market for bitcoin perpetual swaps, a type of derivative in the cryptocurrency markets similar to futures contracts in traditional markets.

Crypto fund flows weaken

Since June, total assets under management across exchange-traded and over-the-counter-traded digital asset investment products decreased by 14% to $34.8 billion.

Compared with traditional asset classes, digital asset markets still have a “long way to go before more risk-averse investors are fully at ease,” according to a report by CryptoCompare.

NFT impact on ether price

As non-fungible tokens gain popularity despite an overall bearish sentiment in the crypto market, some NFT critics inside the market took to Twitter, blaming the non-crypto natives who cash out their ether immediately after NFT sales for the lackluster price movement of the second-largest cryptocurrency by market capitalization.

But according to multiple analysts and market participants, the impact of NFT sales, if any at all, remains a nonfactor on ether’s price. Instead, the complaint showcases many traders and investors’ frustrations in a dull market.

The speculation “is more like a reflection of the current market sentiment,” Daniel Lv, co-founder of China-based blockchain Nervos Network, told CoinDesk’s Muyao Shen through a representative.

The blame, though, isn’t completely irrational because growth in the NFT market has not quite slowed down partly because of the large number of endorsements it has received from non-crypto celebrities.

Altcoin roundup

• AXS price doubles in two days: The governance token of the Axie Infinity platform, AXS, has doubled in price since Wednesday. As of Friday the AXS token was trading at a new all-time high price of $30, implying a year-to-date gain of over 5,700%. Axie Infinity is a blockchain-based trading and battling game that allows players to collect, breed, raise, battle and trade token-based creatures known as “axies,” which are digitized as their own NFTs.
• RUNE tumbles: Thorchain’s token, RUNE, tumbled in digital-asset markets after the blockchain suffered an exploit for the second time in two weeks, this one costing about $8 million. The RUNE price was $3.65 as of press time, down 22% over the past 24 hours, in the worst performance among digital assets tracked by Messari with a market capitalization of at least $500 million. The token has lost some 80% since hitting an all-time high price in May. Thorchain said late Thursday it was hit by an exploit, reported to have cost around $8 million. Last week, the protocol was drained of around 4,000 ether (ETH, -0.11%) ($8.2 million) in another incident.
• Karura Swap opens for trading: The first decentralized exchange on the Polkadot and Kusama ecosystem has been launched by Karura, the DeFi network of the Acala Foundation.
• Tron blockchain: Justin Sun, founder of the Tron blockchain network, said the recent explosive growth on Tron is being overshadowed by better known rival Polygon. Though the total value locked in Polygon surpasses that in Tron, Tron is growing faster in other areas, gaining traction lately with impressive growth in stablecoin.

Relevant News

• Everything You Need to Know About Elon, Jack and Cathie’s Bitcoin Chat
• Goldman Sachs Settling Crypto ETPs in Europe: Sources
• What Is Going On With Bitcoin SV?

Other markets

Most digital assets on CoinDesk 20 ended lower on Friday.

Notable winners as of 21:00 UTC (4:00 p.m. ET):

tezos (XTZ) +3.24%

Notable losers:

the graph (GRT) -4.82%

polkadot (DOT) -4.1%

nucypher (NU) -3.76%