What drives the latest Bitcoin (BTC) bounce from the low?

What drives the latest Bitcoin (BTC) bounce from the low?

Basic points

  • After Bitcoin and Ethereum hit new annual lows below $ 18,000 and $ 900 on Saturday, the cryptocurrency market climate has stabilized.

  • Bitcoin has jumped over 18% to the above $ 20,000 and Ethereum over 30% to the mid-$ 1,100.

  • FOMO in the fall, retail markets and short-term gains have been cited in support of encryption prices.

If panic was the mood of the day on Saturday, relief is the dominant sentiment in cryptocurrency markets on Monday. After falling to its lowest level since January 2021 of about $ 760 billion, the total capitalization of the cryptocurrency market has recovered more than 16% to about $ 890 billion.

Bitcoin and Ethereum, the world’s two largest cryptocurrencies by market capitalization, accounting for more than 60% of the cryptocurrency market, led to the fall and subsequent recovery. BTC / USD fell as low as $ 17,593 on Saturday, but has since recovered more than 17% to $ 20,700. Meanwhile, after falling to $ 880 per badge, ETH / USD has bounced more than 30% to around $ 1,150.

More than $ 170 million worth of Bitcoin futures traded on Saturday, according to CoinGlass, the fourth-highest in three months. Meanwhile, $ 120 million worth of Ethereum stocks were liquidated overnight, although daily liquidity around this level was not uncommon to see in Ethereum markets this month amid recent turmoil.

If so many traders have been bitten by the recent fall, how could cryptocurrency prices rise like an impressive recovery on Sunday and Monday?

What leads to recovery?

Encryption market commentators have suggested a variety of explanations as a result of the recent recovery from the low. Analysts said Fear Of Missing Out (FOMO) for the fall market was likely to play. Selini Capital CIO Jordi Alexander told CoinDesk at the weekend that “willing buyers were in cash waiting to buy cheap coins” and that “they have to decide if they will buy another 20% lower or if this is their chance.” . “If they wait a long time, they will have to hunt higher,” he said, stressing FOMO.

According to Andrew Brenner, head of fixed income at National Alliance Securities, on Monday, the fall in private equity markets was the main driver of the weekend’s recovery, as professional investors are less active at the moment. Many small investors trade / purchase encryption through mobile applications, through which they could monitor the action of weekend prices.

Others cited the taking of profits by those holding short-encryption positions as technical indicators that indicate an increasingly oversold in the market leading to recovery. For example, the 14-day relative strength index of Bitcoin fell below 20 for the first time since March 2020 on Saturday. The last time the Bitcoin RSI fell to comparable levels in January this year, prices recovered up to 35% over the next two months.

Is the last rebound a bull trap?

Some analysts have warned that the latest rally could be a so-called “bull trap” – a recovery that encourages investors to re-enter ultimately unprofitable markets.

FX Empire chief cryptocurrency analyst Bob Mason said Sunday that “investors ‘sentiment to the Fed’s monetary policy and investors’ fears of a global recession remain (in the short term)” for cryptocurrency markets. “If a significant drop in inflationary pressures disappears, volatility is likely to continue as investors assimilate financial data and central bank guidance,” he said.

Mason noted that the Bitcoin Fear and Greed Index remains in the “Extreme Fear” zone at just 9/100 on Monday, although this is admittedly above Saturday’s 6/100 levels. The last time the index was as weak as it was on Saturday was in March 2020 when Bitcoin changed hands for less than $ 10,000.

This article was originally published in FX Empire

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