A small drop in the price of Bitcoin? BTC rapidly bounces to a new high above $ 57,000
Bitcoin price hit a new all-time high above $ 57,800 after a major overnight correction. The price of Bitcoin (BTC) fell as low as $ 53,905 on Binance overnight, registering a sudden 6% drop. But despite the small correction, the price of Bitcoin quickly recovered afterwards, reaching a new all-time high above $ 57,800 on February 21.
Why did the price of Bitcoin fall and rebound so quickly?
Although the price of Bitcoin saw a major drop in just a few hours, analysts noted that it fell exactly to the bottom of a short-term trend line. John Cho, Director of Global Expansion at Ground X, noted that the drop was a liquidity fill at a lower price. $ BTC just needed a little liquidity, that’s it.
A liquidity fill simply refers to when an asset falls after stalling to fill buy orders at the bottom of the range. A drop was expected because the Bitcoin price was consolidating with the futures funding rate at around 0.15%.
On the major futures exchanges, the Bitcoin futures funding rate hovered between 0.1% and 0.2%, and was especially high for stablecoin pairs. Bitcoin futures exchanges use a mechanism called financing to incentivize buyers or sellers based on market sentiment. For example, when there are more buyers in the market, the financing rate becomes positive. When this occurs, buyers have to pay sellers a portion of their position every eight hours.
When the funding rate is high but the price of Bitcoin is consolidating, the risk of a big short-term decline increases. This trend was what happened during the night of February 20, when the price of Bitcoin fell more than 6%. Although the financing rate remains close to 0.1%, it has fallen substantially since then.
The funding rate for altcoins, including Ether (ETH) and DeFi tokens, has reset to around 0.05%. For this reason, altcoins experienced a bigger bounce than BTC.
There is a significant risk in the immediate future
In the short term, Bitcoin faces a significant risk due to the rise in the US Treasury curve. When the Treasury curve goes up, historically, risk assets like stocks tend to fall. In the last week, the US stock market has undergone a strong correction, which shows a clear correlation with the Treasury curve.
However, it remains uncertain whether the price of Bitcoin would react in the same way, given that it is not only considered a risk asset but also a hedge against inflation, which means that it could offset the risk of the Treasury curve. Furthermore, the correlation between the price of Bitcoin and other assets, including stocks and gold, has been declining since September 2020.
Thus, there is a chance that the inflation hedging aspect of BTC will counteract the rising curve of the Treasury. If so, the price of Bitcoin could remain unfazed, especially given the current momentum of the bullish rally.
Misa Christanto, an analyst at Messari, said that in a bear market, everything is correlated. But Bitcoin, which is also considered a “reflation trade” (a scenario where the state artificially stimulates the economy), has been resilient. She wrote: “The US Treasury curve is steepening. Why should we care? Because in a bear market, everything is correlated. So far, the headwinds have been on equity returns, on unprofitable tech names. Reflation trades like $ BTC have not been affected. “
Disclaimer: This press release is for informational purposes information does not constitute investment advice or an offer to invest. The views expressed in this article are those of the author and do not necessarily represent the views of infocoin, and should not be attributed to, Infocoin.