Stock markets and crypto sectors are constantly looking for reasons to explain price movements. It’s important to emphasize that correlation does not imply causation.
Although it is easy to link a regulatory statement or pending legislation with the asset’s final price, it’s not always possible to prove that they were the exact drivers. Some of the indicators below could have been caused by pure luck, even though this has been a consistent pattern throughout history.
Bitcoin’s (BTC), $48,200 increase on October 1 could be attributed to the September 30 comments by Jerome Powell, chairman of the U.S. Federal Reserve. Powell stated that the FED does not intend to ban cryptocurrency when he was asked about his comments regarding Central Bank Digital Currencies.
The current rally could also be explained by Bitcoin’s 7 day average hash rate of 145 exahashes/second (EH/s), which is its highest level since June’s abrupt crash, when China’s mining crackdown intensified.
Finally, traders might have placed their recent bullish bets on rising expectations that a Bitcoin exchange-traded funds (ETFs) would be approved by the U.S Securities and Exchange Commission (SEC).
It is evident that there were multiple factors that could have led to last week’s $49,000 pump, and bulls today appear to be trying to reclaim $50,000. Let’s look at three indicators that indicated a buy signal before the price movement.
After traders switched their attention to DeFi, UNI was the first bidder.
Uniswap (UNI, left) vs. Bitcoin (BTC, right). Source: TradingView
UNI, the decentralized token exchange for Uniswap was pumped a few hours before the Oct. 1 market rally. Altcoin’s price surge began right at the UTC monthly close. It increased initially by 5%, to $24.20 from $23. The move was then followed by another 4% boost to $25.20, three hours before Bitcoin broke above $45,000.
Curiously, DEX volumes began to soar after China placed additional restrictions on Bitcoin the week before. Investors may have begun to realize that China’s actions would not affect trading volume. This could explain why the increase in DEX volumes. The possibility of governments limiting or controlling cryptocurrency adoption is significantly reduced by migrating to DEX.
Shortages on derivatives exchanges saw an increase
Some exchanges offer useful information about clients’ net exposure. They can measure their positions or consolidate data from spot and derivatives market markets. In less than two days, for example, OKEx Bitcoin traders saw their long-to-short ratio drop from 1.25 (favoring longers) to 0.72 (“favoring shorters”) by 28%.
Although it might seem counterintuitive, this shows whales increasing their bearish bets. However, extreme price movements tend to occur when market expectations are broken. The result would have been expected by most traders if there had been a positive price swing.
OKEx Bitcoin derivatives long-to-short ratio. Source: OKEx
The open interest in Binance futures grew abruptly
No matter what underlying asset, futures contracts have longs (buyers), and shorts (sellers), which are matched at all time. It is impossible to predict whether these investors will be biased to one side or the other.
Confidence is reflected in sudden increases in open interest. This reflects the number of contracts that are still being played. Higher stakes are associated with higher notional values.
Futures Binance Bitcoin open interest Source: Binance
Notice how the spikes on the USDT perpetual as well as the open interest in the coin-based contracts occurred 4 hours before the 6:00 AM UTC bull run. It is interesting that even with the additional $400 million bets, Bitcoin prices were not affected by the open interest peak.
Although it is impossible to pinpoint the exact cause of the rally, traders can monitor similar patterns for future price movements and possibly predict them. Although there is no guarantee that any of these indicators will be repeated, the cost of monitoring data is low.
Risk is inherent in every investment or trading move. Before making any investment or trading move, you should do your research.