The price of Bitcoin (BTC) achieved a new all-time high on Feb. 11 as it surpassed $48,500 across major exchanges. Since then, the dominant cryptocurrency has been consolidating, showing no real momentum to break out of the record-high in the near future. But analysts are not fazed by the consolidation after breaking past a new peak.
Generally, market commentators say that when an asset moves slowly or consolidates after an explosive move upward, it is a sign of a healthy market. For Bitcoin, stabilizing following a strong impulse rally to a record-high is critical at this current juncture due to the overcrowded futures market. If the price of Bitcoin continues to increase without a proper reset pullback, it would increase the probability of a major long squeeze in the short term.
A long squeeze happens in the futures market when the market is overwhelmed with buyers or long contracts, and as a result, the funding rate turns highly positive. When the funding rate is above 0%, buyers have to pay a portion of their position as a fee to their short-seller counterpart every eight hours. This mechanism is used by futures exchanges to achieve balance in the market so that the market is not swayed to one side for a prolonged period.
Considering the negative effect of an imbalance in the futures market and the fact that the Bitcoin futures funding rate is consistently hovering above 0.1%, which is 10 times higher than the normal 0.01%, longer consolidation is optimistic for Bitcoin. But this is given that BTC remains above crucial support areas, which has seemingly been established at $44,214, acting as a crucial whale cluster support level in the near term.
Where is Bitcoin heading next?
In an interview with Cointelegraph, Guy Hirsch, U.S. managing director at eToro, emphasized that Tesla’s $1.5-billion BTC purchase took the market by storm. The news caused a significant sentiment shift, leading many investors to perceive this as a turning point in the history of the crypto market and how public companies would perceive crypto assets. The news also broke as MicroStrategy conducted a seminar with over 1,400 corporations to discuss Bitcoin.
Hirsch explained that the synergy between Tesla buying Bitcoin and MicroStrategy continuing to spread awareness about the merit of BTC as a store of value and a corporate investment would propel more public companies to follow up with similar announcements. If this trend occurs, Hirsch emphasized that a push toward $50,000 is plausible before the end of the second quarter, adding:
“We are likely to look back on MicroStrategy and Tesla as being at the forefront of this new way of using corporate treasury assets to appreciate cash holdings, rather than just sit on them, and see this as a turning point not only in the history of Bitcoin but also of how publicly traded companies act and serve in the best interests of their shareholders.”
Traders are also generally expressing optimism toward both the short-term and medium-term trajectory of Bitcoin’s price. A pseudonymous trader known as Loma said that the “relative downside on BTC is so slim” at the moment, considering the strong market sentiment around it. The trader noted that “$50k is inevitable,” and whether BTC drops “a bit beforehand” is not a major issue.
A “black swan” event could in theory cause a 30%-40% correction in the price of Bitcoin, as seen throughout its past bull cycles. However, Bitcoin is seeing an unprecedented level of buyer demand from high-net-worth investors and institutions who were not as active in the past few years.
The inflow of new institutional investors presents a major variable that could buoy BTC’s momentum toward the $50,000-$70,000 range. The continuous increase in liquidity in the traditional financial market is further catalyzing the appetite for inflation hedge assets, which include the likes of Bitcoin and gold.
A potentially bearish case for BTC
A crypto whale known as Waro said that there is one scenario where Bitcoin could see a potential pullback in the short term. The trader explained that if BTC struggles to break out of $48,000, it could see its momentum dwindle and see a 5%-15% drop in the foreseeable future.
According to him, this would be a positive trend for BTC, as it would allow it to access some of the liquidity and large buy orders in the low $40,000 range: “I was one of the first to call for 52k about a week ago and now everyone is euphoric and screaming for 50+ while bitcoin is having trouble with this resistance. Not a bear, it just needs more fuel, that’s all.”
One fundamental factor that could counter a potentially bearish market sentiment around Bitcoin is the declining selling pressure from miners. In the past two weeks, miners sold large amounts of BTC, placing pressure on the short-term price trend of Bitcoin. Since miners are one of the few external sources of selling pressure in the cryptocurrency market, heightened levels of selling activity can suppress the uptrend of Bitcoin.
Lex Moskovski, a cryptocurrency investor and a quant trader, found that miners “are not so eager to sell their #Bitcoin the last two weeks.” He said that either miners are anticipating the price of Bitcoin to increase substantially in the foreseeable future or have run out of BTC to sell in the near term.
Either way, this trend is a positive catalyst for Bitcoin that could counter the bearishness around the crypto market and push BTC toward a new all-time high above $50,000.