Bitcoin prices rose more than 10% in 24 hours from USD 7,020 to USD 7,770 on cash and futures exchanges. However, BTC shows all three signs that the rise was a bullish trap.
A negative pre-rally futures funding rate, alternative currencies don’t overtake Bitcoin, and the price of BTC, which is at a multi-year resistance level, suggests that the recent price hike is wrong.
The futures funding rate was negative before Bitcoin’s recovery
At Binance Futures, Bitcoin’s funding rate fell to -0.03% before the price hike.
Bitcoin financing rate table on all futures exchanges. Source: Skew
Futures exchanges such as BitMEX and Binance Futures use a system called financing to provide both long and short contract holders with a market balance. If there are more short contracts in the market, the financing rate becomes negative and traders who conclude short contracts with BTC have to compensate long contract holders with part of their positions..
For example, if a trader places USD 50,000 in Bitcoin and the funding rate is -0.03%, the trader will have to pay USD 15 every eight hours, which is a total of USD 45 per day for long contract holders.
When the price of Bitcoin began to rise and the funding rate remained negative on April 23, this created an unfavorable environment for sellers as they paid part of their positions while the value of their trades fell rapidly.
This forced short sellers to close or adjust their positions, which contributed to growing buying demand in a short period of time. It finally became a little pressure that liquidated $ 79 million on BitMEX shorts alone.
Slight pressure was expected due to the negative funding rate, but the pace of recovery slowed rapidly and increased skepticism about the strength of the upward movement.
Altcoins don’t recover together
Usually In an extensive and sustainable Bitcoin rally, important alternative cryptocurrencies such as Ether (ETH) and XRP tend to rise alongside BTCsometimes move forward.
During the time when the price of Bitcoin rose seven percent, the price of ether recovered about seven percent and lagged behind BTC.
The lack of high volatility in the altcoins market given the bitcoin uptrend shows that there are not many buyers in the cryptocurrency market willing to take additional risks at short notice.
BTC is in a multi-year resistance area
Bitcoin’s price hike stopped at $ 7,770, a level that has been acting as a resistance level since early 2018.
BTC / USD weekly chart. Source: trade view
The $ 7,700 to $ 8,300 range, along with the $ 10,500 to $ 11,000 range, has been one of the strongest resistance areas since January 2018.
Given that $ 7,900 and $ 8,000 are historically significant simple moving average (SMA) resistance levels, it is highly unlikely that BTC will break both levels at once without rejection, which, after halving to a sharp downtrend, may result in a mid-May trend.
However, one variable is that April to July have been consistently strong months for Bitcoin in recent years and the next halving is in the three-month range.