Market Wrap: Possible Trend Reversal as Bitcoin Spikes Past $40K

Bitcoin is in rally mode, posting its largest daily gain in six weeks as shorts covered positions over the weekend. The cryptocurrency was trading around $38,874 at press time and is up 14.5% over the past 24 hours. Sentiment has shifted from extreme bearishness after a sharp correction in May and two months of consolidation between $30,000 and $40,000.

Some analysts expect further upside and view the recent bounce as a trend reversal.

“We turned bullish last Wednesday but weren’t expecting the short squeeze to happen quite so soon,” wrote QCP Capital in a Telegram chat. “We’ve been pleasantly surprised by how supported the market was after Wednesday and sentiment flipped decisively bullish into the weekend.”

Latest prices

Cryptocurrencies:

• Bitcoin (BTC) $38,874, +14.5%
• Ether (ETH) $2,324.7, +9.08%

Traditional markets:

• S&P 500: 4422.3, +0.24%
• Gold: $1976.8, -0.31%
• 10-year Treasury yield closed at 1.293%, compared with 1.281% on Friday.

“This move higher feels more like a bounce back into a neutral state after being overstretched to the downside below $30K,” QCP wrote. “The real pain could be lurking from short gamma positions above the $40K level.”

“Bitcoin momentum is back, and incremental endorsements on Wall Street could easily be the catalyst to help prices rally towards the $45,000 level,” wrote Edward Moya, strategist at Oanda, in an email to CoinDesk.

Blockchain metrics are also showing positive signs for bitcoin.

“Bitcoin has slowly trickled back into the hands of longer-term holders throughout these months after the dramatic sell-off from all-time highs in May,” wrote Sean Rooney, head of research at crypto asset manager Valkyrie Investments, in an email to CoinDesk.

“Historically this trend of entities that hold long term does not reverse quickly, which will likely result in further advance in price as we move towards Q4,” Rooney wrote.

Short squeeze confirmed

The strong bounce in bitcoin over the weekend occurred as shorts covered positions. Roughly 2,000 short positions were liquidated over a two-hour period, according to data from CryptoQuant.

The short-squeeze rally occurred despite regulatory pressure surrounding stablecoins.

“The short order liquidation amount in the past hour reached $640 million, which is the largest single-day liquidation volume in more than two months,” wrote WuBlockchain in a tweet on Monday.

Bitcoin options expiry

A strike price of $40,000 represents the largest source of open interest for the upcoming bitcoin options expiry this Friday, which could be a source of volatility.

“BTC has been rangebound between $28K-$43K and most expect an upside squeeze to occur on a break above $40K,” wrote Coinbase in a newsletter to institutional clients on Saturday.

“But with overwriting strategies forced to settle on lower strikes ($35K-$38K), a sharp short-covering rally will likely begin from lower levels,” Coinbase wrote.

Weekly fund flows

They missed out.

Investors pulled money out of digital-asset funds as bitcoin dipped below $30,000 last week, according to a report Monday by CoinShares. Outflows coincided with negative sentiment that preceded a near-24% price jump in bitcoin over the past seven days.

Monday’s crypto price rally – bitcoin jumped above $38,000 – could encourage digital-asset inflows because many investors have been on the sidelines since the sell-off in May.

Altcoin roundup

• USDT maintains dollar peg: USDT has largely held its dollar peg since Bloomberg reported Monday that the U.S. Department of Justice is investigating Tether, issuer of the largest stablecoin, for possible bank fraud. The token, which serves as crucial plumbing for the $1.6 trillion crypto market, has traded at $1 for most of its history, but past scares have caused it to temporarily lose parity with the greenback. In 2018, for example, USDT fell to as low as 92 cents amid concerns about its collateral and about Bitfinex, the crypto exchange that shares owners and managers with Tether. The reaction to the latest news is mild by comparison.
• Altcoin rally: Bitcoin’s price surge early Monday led a rally in so-called altcoins, with aave (AAVE), chainlink (LINK) and bitcoin cash (BCH) notching double-digit percentage gains. Aave, an open-source and non-custodial protocol that runs on the Ethereum blockchain that enables users to lend and borrow a range of crypto assets, has climbed 18% in the last 24 hours, according to CoinDesk 20 data. Chainlink, a decentralized oracle network, was trading at $19.17, representing a 14% gain in the last 24 hours. Bitcoin Cash, the blockchain that forked off Bitcoin in 2017, was up 13%.
• Uniswap Labs Limits Access to Some Tokens: Uniswap Labs is restricting access to some tokens, including tokenized stocks and derivatives on the protocol interface that it supports, the software development studio said in a blog posting Friday. The news comes days after U.S. regulators’ announcement that they would increasingly scrutinize these types of decentralized finance (DeFi) products. Uniswap cited an “evolving regulatory landscape” in explaining its decision.

Relevant news

• FTX Cuts Leverage Limit to 20x From 100x as Criticism of Margin Trading in Crypto Grows
• Binance Says It’s Cutting Leverage Limit to 20x, a Day After FTX Announces the Same
• ‘Tulip Bulb’ Crypto Has ‘No Inherent Worth,’ Man Group CEO Says
• Bitcoin Spike Fueled by Short Squeeze as Market Shrugs Off Tether News

Other markets

Most digital assets on CoinDesk 20 ended up higher on Monday.

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

chainlink (LINK) +19.1%

aave (AAVE) +16.2%

bitcoin cash (BCH) +15.4%

Notable loser:

algorand (ALGO) -0.74%