Crypto Rally Emerges as Liquidations Plunge: Is This a Bull Trap?
A crypto rally is happening today, Nov. 24, with Bitcoin and many altcoins being in the green. Bitcoin jumped from last week’s low of $80,000 to $87,000, while the market cap of all tokens crossed the $3 trillion.
Why the Crypto Rally is Happening
There are at least four main reasons why the crypto rally is happening today. First, Bitcoin and most altcoins have been in a freefall in the past few weeks, moving to the extreme oversold levels.
As a result, it is common for crypto prices to rebound when this happens as investors buy the dip. This buying happens as these traders go bargain hunting.
Second, data in the futures market shows that the open interest rose by 2% in the last 24 hours to $128 billion. This jump coincided with the 24-hour liquidation of $207 million, down by about 2% from a day earlier. This liquidation figure is much lower than last week’s peak of over $2 billion.
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A combination of rising open interest and falling liquidations always leads to higher prices. Still, daily open interest remains significantly lower than where it was a few months ago.
Third, crypto prices are rising as odds that the Federal Reserve will cut interest rates jump. These odds have risen to 70% on Polymarket, up from last week’s low of 50%. They odds soared after a statement from New York Fed’s John Williams, who said:
“I view monetary policy as being modestly restrictive, although somewhat less so than before our recent actions. Therefore, I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral.”
Additionally, cryptocurrencies are rising as the Fear and Greed Index moves to the red zone. It has plunged to a low of 11, its lowest level this year. It is common for the crypto industry to rebound when the index moves to the fear zone.
Dead Cat Bounce?
Still, there is a risk that the ongoing crypto market rally is a dead-cat bounce (DCB). A DCB is a situation where an asset that is falling bounces back briefly and then resumes the uptrend. It is also known as a bull trap.
The fact that this is a bull trap calls for caution as Bitcoin and altcoins remains in a bear market. They all remain below their short and longer-term moving averages, a sign that the selling pressure remains.
As we wrote on Friday, chances are that the crypto recovery will happen when Bitcoin forms a double-bottom pattern. It has already formed the first part of this pattern, meaning that it may retest it soon.
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