Bitcoin price saw a brief rally today, and a market-wide rally in crypto prices suggests that Bitcoin (BTC) , Dogecoin (DOGE) and Ether (ETH) could be aiming to start the month of November in the black.
The Federal Reserve’s Nov. 2 announcement of a 0.75 basis point interest rate hike at first had a positive impact on equities and cryptocurrency markets, which posted marginal gains prior to Fed Chairman Jerome Powell issuing comments about the rate hike and future of Fed policy.
BTC briefly notched a daily high at $20,800 before retracing to the $20,500 range. While the current price is fluctuating, BTC is holding above the psychologically important $20,000 level.
BTC price. Source: Cointelegraph
The 0.75% hike was expected by investors and Powell plus the Federal Open Market Committee (FOMC) hinted at continuing rate rates while also mentioning the potential for a pivot based on the data reviewed at the next meeting.
As reported by Cointelegraph, in this scenario, Bitcoin and other cryptocurrencies like Ether and DOGE will likely remain closely correlated to U.S. equities and display the same price dynamics witnessed prior to and after previous rate hike cycles. Bitcoin bulls are already preparing for a post FOMC win and price jump with $640 million in BTC options expiring this Nov. 4.
Hand in hand with Bitcoin’s growth, most major cryptocurrencies including Ether, DOGE, Solana (SOL), Cardano (ADA), Polygon (MATIC), Ripple (XRP) and Tron (TRX) briefly registered green candles after the rate increase announcement but also have retraced. There are several reasons for the recent movement.
Crypto market performance. Source: CoinMarketCap
The current rally in BTC and altcoins could indicate an increase in confidence in the market following several key developments.
Here are three reasons why Bitcoin price rallied then retraced today and the details of key drivers of the growth.
Bitcoin open interest remains tilted toward short traders
Since Bitcoin price crashed to $17,600 on June 18, the open interest of BTC futures contracts has been surging. Sharp price moves in Bitcoin price could trigger another liquidation event, but it is difficult to determine whether the move would be to the upside or downside.
Many traders agree that if the Fed were to pivot on its current policy of quantitative tightening and interest rate hikes, BTC price could surge to the upside and liquidate a significant portion of the short interest in futures contracts.
The current price move triggered a wave of liquidations and one data point to keep an eye on is there is a sharp reduction in aggregate open interest. Data shows that $704 million in cross-crypto shorts were liquidated on Oct. 25, helping propel Bitcoin over $20,000.
Bitcoin options open interest. Source: Coinglass
Short liquidations directly help push the Bitcoin price higher by forcing automated buy pressure. The current rally is seeing open interest gaining momentum after remaining consistent in October which explains much of the sideways trading as well as the current rally.
Longer-term data is in Bitcoin’s favor, according to market analysts
Investors’ confidence in the crypto market could also be rising due to their belief that the United States Federal Reserve could roll out smaller-sized interest rate hikes in the next two months.
In the Fed’s statement, the possibility of policy shift does remain open:
In order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.
According to Macromicro, a firm that publishes investors’ consensus estimates on expected changes in interest rates, shows that interest rates may be lower than previously anticipated in the near future.
Interest rates may fall. Source: Macromicro
The graph points to a possible slow down in the interest rate hikes. The public sentiment shows that future rates may fall and investors believe that this has created the possibility for a broad crypto market recovery.
The S&P 500 provides a general overview for the economy in general. Currently, Bitcoin and the S&P 500 share a high correlation coefficient.
Bitcoin to SPX correlation coefficient. Source: TradingView
Therefore if interest rates ease and the economy grows, Bitcoin could reverse course if a similar turn-around were to take place in equities markets. The better the macro climate, the better for Bitcoin price.
Related: Bitcoin price hits $20.8K as volatility ensues over Fed 75-point rate hike
Bitcoin’s sharp sell-offs could be a thing of the past
Bitcoin remaining over $20,000 is significant to traders who view the level as a major psychological support and resistance. On-chain data is currently confirming that a $20,000 floor may not be purely speculative but also technically sound.
Bitcoin’s realized price is currently concentrated between $17,000 and $22,000, highlighting a strong base of holders.
Bitcoin UTXO realized price distribution in October 2022. Source: Glassnode
In addition to realized price distribution, Bitcoin long term holders are not only still in profit but 60% of the all long-term holders are in profit.
Some investors might interpret Bitcoin’s current low volatility, steady consolidation within the $20,000 range and the unwillingness of sellers in the midst of the current equities-driven headwinds as a sign that price has bottomed.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.