Today the price of Bitcoin (BTC) abruptly rose by 6% from $10,136 to as high as $10,743.
After this powerful 24-hour rally, analysts are now turning cautiously bullish for various reasons but will Bitcoin price be able to tackle the $11K mark any time soon?
Cryptocurrency daily market performance snapshot. Source: Coin360
Currently, the factors that appear to be lifting investor sentiment are negative funding rates, BTC whale activity, and the U.S. dollar’s recent weakness.
Funding rates are neutral or negative at most exchanges
BTC/USD daily chart. Source: TradingView.com
At the moment, Bitcoin’s funding rate across various futures exchanges is either neutral or negative, despite the price hovering above $10,000.
Bitcoin futures exchanges utilize funding to ensure there is balance in the market and it disincentivizes the majority of the market to prevent the market from swaying to one side for a prolonged period.
If long contracts, or traders betting on a Bitcoin price increase represent the overwhelming majority, they will need to pay short contract holders. The opposite applies if short contract holders dominate the market.
When the funding rate turns negative, it means the majority of the market is shorting BTC. Typically, when funding rates remain below zero, it causes a short squeeze and a surge in BTC price. It can also be an indication that the short bet is overcrowded, raising the likelihood of an upsurge.
A popular pseudonymous trader known as “DonAlt” tweeted that it is “weird” to see sentiment bearish with negative funding rates. He said:
“It's very, very weird seeing sentiment be this bearish, with neutral or negative funding above $10K. Don't think I can remember a time where that has happened before.”
The trader also noted that he sees an absorption of selling pressure at $10,000. He added:
“Now I'm seeing absorption at $10K, it looks like the only people selling are people on derivatives and I've closed my shorts to see how the next week is going to play out.”
The overcrowded Bitcoin market with short contracts coincides with some top whales possibly moving their holdings off exchange.
Optimistic whale activity
According to Whalemap, a group of on-chain analysts who track crypto whale activity, top buyers moved their BTC on Sept. 23.
A map of unspent HODLer Bitcoin. Source: Whalemap
The analysts said top buyers moving their funds have typically been a bullish catalyst for BTC. They explained:
“Top buyers were moving their coins yesterday. From my personal experience looking at this metric, next day after top buyers move, we go up.”
The dollar weakens
As the number of COVID-19 cases surges in the U.S., lawmakers are locked in a stalemate over the future of a much needed stimulus package and this is leading strategists to speculate on a weakening U.S. dollar.
Before the initial rally, Michael van de Poppe, a full-time trader at the Amsterdam Stock Exchange, said $10,700 to $10,800 is likely for Bitcoin.
The trader emphasized that if the dollar slows down, the $11,200 to $11,400 range could be a reasonable target. He wrote:
“Nice, we're holding here. Looks ready to test the $10,700-10,800 areas and maybe even $11,200-11,400 if the dollar slows down for a bit.”