Here are three reasons why Bitcoin price won’t stop the rally
As of September 5, more short BTC transactions are popping up on Bitcoin futures markets. As the majority of transactions shifted to betting against BTC, the funding ratio of BTC futures has turned negative. But over the past 30 hours, Bitcoin price has risen from $ 10,211 to a high of $ 10,878 on Coinbase. A large number of short orders in the market are driving BTC’s rally for the three reasons below.
#1: Low funding rates favor Bitcoin
Bitcoin futures markets are implementing a mechanism called “funding”. In short, funding encourages traders to long BTC if the market is mostly short or vice versa.
Therefore, when most traders are actively shorting Bitcoin, short contract holders are required to compensate for those holding long contracts. The problem occurs when the funding rate remains negative for a long time.
Bitcoin Futures Market Funding Rate | Source: Skew.com
If Bitcoin does not decline, but funding rates remain low, short contract holders will have no incentive to short. Ultimately, short contract holders adjust their orders, forcing them to buy BTC in the market. The whole process increases the demand for BTC in the short term.
Trader Byzantine General considers the low funding rate as a potential catalyst for Bitcoin.
He explained as follows:
“We almost have more sellers at a loss than making a profit. This is optimistic in case you didn’t know.”
#2: A small short squeeze is happening
The open interest rates on the futures market have been at low levels for the past month. Therefore, the market is less volatile for a long time. Since open rates are low, a big short squeeze is unlikely. However, over the past two days, BTC has risen more than 6%, establishing strong new momentum. The bull run shows that a small short squeeze is in progress, invalidating the futures market.
Bitcoin 4-hour Price Chart | Source: TradingView.com
#3: Impact of $ Bitcoin price 10,000 support level protection
Traders regularly talk about the importance of the $ 10,000 support level throughout August and September. Bitcoin steadily defended the $ 10,000 mark despite the recent selling pressure from miners. And the reason is simple, just let BTC quickly recover above this psychologically important level for traders. The presence of the long-term CME gap at $ 9,650 has increased the probability of a more profound fall below $ 10,000, even though it becomes increasingly unlikely.
The stability above $ 10,000 and the constant attempt to retest the $ 11,000 resistance is an encouraging trend.
Analyst Michael van de Poppe at the Amsterdam Stock Exchange and Cointelegraph Markets explained that the critical resistance to breakout is $ 10,700.
BTC overcame that resistance on lower timeframes and the next hurdle is up to the high timeframe charts to establish $ 10,700 as the new support.
“In the resistance zone. A crucial area to hold at $10,350. Crucial resistance to break is $10,700. Breakout up, and we’ll target $11,000-11,200.”
You can see the BTC price here.
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