Market Wrap: Bitcoin Rally Strengthens as Trader Sentiment Improves

Bitcoin (BTC) rallied above $43,000 on Monday, retracing about 30% of the sell-off since November. Some analysts expect the short squeeze rally could continue, albeit with less momentum compared with previous price surges.

Trading volume across major BTC exchanges ticked higher on Monday, but is still lower than January highs. Below-average trading activity during price rallies typically reflects low conviction among traders.

Volatility is also low in the bitcoin options market despite the price rally. "Volatilities remain under tremendous pressure in spite of the fast rally in the BTC spot market," QCP Capital, a Singapore-based crypto trading firm wrote in a Telegram chat. "BTC 1-week implied volatilities traded close to the lows of 50% over the weekend! Levels have come up slightly now," QCP wrote.

For now, technical indicators show additional room toward resistance at $45,000-$47,000. Bitcoin is testing its 50-day moving average after an oversold bounce left support intact around $37,400, according to Katie Stockton, managing director at Fairlead Strategies. "We would tread carefully, however, due to bitcoin’s loss of long-term momentum," Stockton wrote in a Monday note.

Latest prices

●Bitcoin (BTC): $44034, +5.97%

●Ether (ETH): $3145, +5.50%

●S&P 500 daily close: $4484, −0.37%

●Gold: $1823 per troy ounce, +0.90%

●Ten-year Treasury yield daily close: 1.92%

Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.

Funding rates little changed

Bitcoin's average funding rate, or the cost of holding long positions in the perpetual futures market listed on major exchanges, also remains low despite the recent price rally. That could mean leveraged traders are still cautious and have not positioned themselves aggressively during BTC's 13% price jump over the past week.

The funding rate is slightly negative, which means that "leveraged shorts are likely to get liquidated if prices continue to rally, adding more fuel to this short squeeze," QCP Capital wrote.

Liquidations occur when an exchange forcefully closes a trader’s leveraged position as a safety mechanism due to a partial or total loss of the trader’s initial margin. That happens primarily in futures trading.

The previous surge in bitcoin funding rates occurred early in 2021, which preceded a near-50% sell-off. This time, however, funding rates have not reached extreme levels, which suggests some traders have been on the sidelines, scarred by significant liquidations in the prior sell-off.

Crypto fund inflows rise

Crypto funds saw inflows of $85 million during the seven days through Friday, according to a report Monday from the digital-asset manager CoinShares. It was the third straight week of net inflows.

About $71 million flowed into bitcoin-focused funds last week, the largest amount since early December.

Despite the overall bullish sentiment, Ethereum-focused funds saw outflows of $8.5 million, which was less than last week’s $26.8 million in outflows but still a sign of an unsteady market.

Altcoin roundup

• XRP leads crypto gains: Ripple's XRP token led gains among major cryptocurrencies with an 18% increase to over $0.79. The price surged amid positive sentiment around the court case in which the U.S. Securities and Exchange Commission alleges the blockchain-based payments firm sold XRP as an unregistered security to the public, according to Shaurya Malwa. Read more here.
• Shiba Inu's SHIB rockets 26%: Shiba Inu-themed tokens were the top gainers on Monday, gaining as much as 46% in the past 24 hours. The price movement caused more than $11 million in losses to liquidations for traders of SHIB-tracked futures products. Its weekend surge came days after developers unveiled a tie-up with Welly’s, a fast-food chain selling burgers and fries. The partnership involves rebranding Welly’s stores to include Shiba Inu-themed products and imagery, and the issuance of non-fungible tokens (NFT) for customers, developers said. Besides SHIB, Dogecoin (DOGE) is also among the top meme token gainers, adding 13% of returns in the past 24 hours.
• Japan's biggest bank to issue yen-pegged stablecoin: The trust banking arm of Mitsubishi UFJ, Japan's largest bank by assets, is planning to use blockchain technology for securities trading and set up the stablecoin as a payment instrument. This will expedite the settlement process, which now takes a couple of days, saving millions of dollars by making it instantaneous, according to Jamie Crawley. Read more here.

Relevant news

• Bitcoin Will Reach $200K in Second Half of 2022, FSInsight Says
• Crypto Fund Fund Inflows Follow Pickup in Market Sentiment
• Valkyrie Bitcoin Miners ETF Approved for Nasdaq Listing
• Crypto Payments Firm Wirex Expands to US, Begins Distributing Crypto-Linked Visa Debit Card
• $4.4M Stolen in Hack of Blockchain Infrastructure Firm Meter

Other markets

Digital assets in the CoinDesk 20 ended the day higher.

Largest gainers:

Asset Ticker Returns Sector Polygon MATIC +19.3% Smart Contract Platform XRP XRP +17.6% Currency Ethereum Classic ETC +11.6% Smart Contract Platform

There were no losers in the CoinDesk 20 on Monday.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive, and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.