The price of Bitcoin increased over a 24-hour span by more than 10 percent, rising from $7,020 to $7,770 on both spot and futures exchanges. But, BTC shows all three signs that the upsurge was a trap for bulls.
Before the rebound, negative futures funding levels, Bitcoin altcoins struggling to run front. And the BTC price dropping into a multi-year resistance range all point to the recent price surge is a fakeout.
Future Funding Rate Before the Bitcoin Rally Was Negative
On Binance Futures, Bitcoin’s funding rate fell to as low as -0.03 percent before the abrupt price increase.
Futures exchanges such as BitMEX and Binance Futures use a system called funding to provide equilibrium for long and short contract holders in the market. If there are more short contracts on the market, the funding rate becomes negative. And BTC short-term traders have to compensate long contract holders with a portion of their positions.
For instance, if a trader places a $50,000 short on Bitcoin. And the funding rate is -0.03 percent, then the trader has to pay $15 every eight hours, so $45 a day too long contract holders in total.
When the Bitcoin price began to rise and the funding rate on April 23 remained negative, it created an unfavorable environment for sellers as they were paying part of their positions while the value of their trades was declining rapidly.
That forced short holders to close or adjust their positions in a short period of time, adding to the already rising demand for purchases. In the end, it turned into a short squeeze, liquidating shorts worth $79 million on BitMEX alone.
Because of the negative funding rate, a short squeeze was expected, but the rally momentum dwindled rapidly, raising skepticism about the strength of the upside move.
Altcoins don’t rally tandem
Usually, big alternative cryptocurrencies like Ether (ETH). And XRP continues to grow in tandem with BTC in an extended and sustained Bitcoin rally, occasionally facing it.
During the time the price of Bitcoin increased by seven percent. Ether’s price rallied by about seven percent, underperforming against BTC.
The lack of high volatility on the altcoin market in the midst of a Bitcoin uptrend indicates that in the cryptocurrency market there are not many buyers willing to take additional short-term risks.
BTC finds itself in a resistance zone for many years
The increase in the price of Bitcoin came to a halt at $7,770. A point which has been serving as a line of resistance since early 2018.
As of January 2018, the range from $7,700 to $8,300 has acted as one of the highest resistance areas alongside the range from $10,500 to $11,000.
With $7,900 and $8,000 being historically significant rates of simple moving average (SMA) resistance. It is highly unlikely that BTC can break both rates at once without any rejection. Which could cause a steep downtrend following the mid-May halving.
One aspect, however, is that over the past few years, April through July has been reliably strong months for Bitcoin. And the coming halving falls within the three-month range.