Bitcoin price is steamrolling toward $18,000, and excited traders are calling for the top-ranked digital asset to overtake the 2017 all-time high at $19,763. Unless you're a bear, reaching a new all-time high is great. But ideally, for a sustainable rally to maintain its pace, a staircase uptrend is more beneficial than a sudden upward climb.
In recent weeks, BTC has continuously surged higher without prolonged consolidation periods or any major dips.
The chances of a blow-off top is increasing
A pseudonymous trader known as “Squeeze” specified that the lack of consolidation in Bitcoin has been a trend since late October, and he hinted that this can exhaust the momentum of the current rally.
While Bitcoin's momentum has been strong, the price has also increased by nearly six-fold since the March crash. When BTC continues to increase without major corrections, the probability of a large pullback increases. The trader wrote:
“Consolidations are getting shorter without much retracement. Blow-off top is coming soon.”
Peter Brandt, a popular veteran trader who also keeps tabs on BTC price action, raised a similar point earlier this week. Brandt noted that in previous bull runs, BTC saw nine corrections until the record high.
In the recent uptrend, at least to date, Bitcoin has seen two major corrections. Compared with historical uptrends, BTC has seen considerably smaller corrections. He wrote:
“During the 2015-2017 bull market in Bitcoin $BTC, there were 9 significant corrections with the following averages: 37% decline from high to low. 14 weeks from one ATH to the next ATH. Since the early Sep low there have been two 10% corrections.”
Since the Nov. 8 dip, the price of Bitcoin has increased from $14,344 to as high as $17,858 on Binance. Within merely 10 days, BTC saw a near 25% gain with a clear consolidation phase.
The pattern of a rally followed by consolidation and occasional corrections is key for a prolonged rally, as it neutralizes the futures market and decreases the chance of abrupt blow-off tops.
In technical analysis, a blow-off top refers to when the price of an asset suddenly and steeply falls. As an example, BTC saw a blow-off top after the 2017 peak. In the next 52 days that followed, BTC dropped by almost 70%.
Since Bitcoin is nearing price discovery above $20,000, traders expect BTC to see a fall before hitting $20,000. But there is a chance that this trade is overcrowded, as many analysts seem to be anticipating a similar scenario.
Futures funding rates are neutral
One variable that could see the rally continue in the short term is the funding rate. Across major futures exchanges, the BTC futures funding rate is hovering at 0.01%.
Futures exchanges in the cryptocurrency market use the mechanism called “funding” to achieve balance among traders.
When the majority of traders in the market are longing Bitcoin, the funding rate turns positive. If this happens, long contract holders or buyers have to incentivize sellers and vice versa.
Top futures exchanges, like Binance Futures, are showing a 0.01% funding rate, which indicates that the current rally is not overheated.
Ultimately, traders still expect Bitcoin will form a blow-off top as the price approaches $18,000. Meanwhile, technical analysts noted that the recent BTC price cycle shows that each rally has been followed by shorter consolidation periods.