There are many broad reasons behind Bitcoin’s rally, such as the high institutional demand for BTC. But for the current intraday rally, excessive shorting on Binance Futures was likely the primary catalyst.
$25,000 BTC now above stock-to-flow model price
Before the upsurge, many traders were shorting Bitcoin across most major futures exchanges. This eventually led to a short squeeze as short-sellers were selling so close to the previous all-time high. As soon as the record-high broke, BTC began to surge rapidly as Bitcoin price entered price discovery.
According to data from Bybt.com, more than $131 million worth of Bitcoin futures contracts were liquidated in the last 24 hours. As long as the derivatives market continues to see an increase in sellers, the probability of more short squeezes in the near future remains high.
What's more, the current rally means that BTC is now above the mean line of the popular stock-to-flow model, which forecasts a $100,000 target by December 2021.
What happens to Bitcoin next?
Meanwhile, traders and technical analysts generally remain overwhelmingly positive on Bitcoin’s price trend. Popular trader Philip Swift, for example, noted that the number of big sellers has actually subsided during the current rally.
"Large players, >1000btc wallets, have calmed down for 1st time in this huge run-up," explained Swift. "We can see the number of >1000btc wallets decrease rapidly over the past week or so. Whereas we can see the 1-10 BTC wallets (mass retail) have continued to steadily climb in recent weeks."
So quick topline analysis suggests a lot of retail buyers are now coming in over the Christmas break. Potentially due to: a) hearing about BTC from fam/friends during the holidays now it is making new ATH's. b) plus some potential switching out of XRP/other alts.
Traders are also increasingly cautious about shorting Bitcoin because it is yet to achieve a clear top. Until BTC peaks, the chances of a large short squeeze that will fuel the price rally even further in the short term remain high.
Moreover, Cointelegraph Markets analyst Michael van de Poppe said the next impulse wave could see Bitcoin exceed the $40,000 mark. He wrote:
“Bitcoin breaking upwards even more as it's approaching my second Fibonacci point of interest around $25,800. The higher we go, the higher the next impulse move will bring us. If $25,800 is this temporary top, next impulse could bring $BTC towards $40,000+.”
Take notice of institutional demand
The next logical top for Bitcoin would likely be when the institutional buying of Bitcoin slows down.
16/ Here are the financial institutions and trading legends that have recognized Bitcoin is Gold 2.0 over the last 4 months:— Dan Held (@danheld) December 26, 2020
- JP Morgan
- Deutsche Bank
- Bill Miller
- Mass Mutual
The most practical way to gauge institutional sentiment is to evaluate the volume of the CME Bitcoin futures market and BTC inflows into Grayscale.
Until the two institutional investment vehicles see a noticeable decline in demand and trading volume, the chances of a deep Bitcoin correction remain low.