Bitcoin’s overnight rally on Dec. 15, saw the price hit a high of $19,570 but the high could not be maintained as the price fell by 2.5% within three hours.
Bitcoin’s relief rally and negative futures market funding rates affected its price positively, where it spiked to around $19,600. It however rejected the same level it broke down from since November due to whales selling pressure.
The Expectation of a Relief Rally
Technical indicators on Dec. 12, showed that Bitcoin was oversold after its price dropped below $17,600. The four-hour candle chart from TradingView indicated a bullish divergence and a TD9 buy indicator, which decrypted that selling pressure was exhausted.
The price however recovered from its fall to rise quickly above $18,000 and continue the run beyond $18,300. This momentum was further boosted by BTC’s break of the whale cluster key resistance level of $18,800. The relief rally propelled BTC to continue surging, where it reached $19,570 across major exchanges.
The Effect of Negative Futures Funding Rates
Futures funding rate is a mechanism used to ensure perpetual futures contract price stays close to the index price. Cryptocurrency derivative exchanges use a funding rate on perpetual contracts, which is set by the market and varies over time.
As bitcoin started to recover above $18,000, the futures funding rates across Binance Futures and other major platforms turned negative. This happens when there are more sellers than buyers, meaning that the likelihood of a short squeeze increases causing a sudden spike in the demand of buyers in the market.
The funding rate was negative for a short period but it indicated an aggressive selling situation since Bitcoin’s funding rate rarely turns negative.
A pseudonymous trader called Byzantine General claimed in a tweet that short-sellers were highly aggressive throughout the relief rally and that a move above $19,300 would squeeze many shorts.
— Byzantine General (@ByzGeneral) December 14, 2020
The claim that a squeeze would occur was confirmed when Bitcoin surpassed $19,300 as it quickly made its way to $19,570.
Return Of Bitcoin Whales In Exchanges
Although Bitcoin made a strong recovery, it experienced a large sell-off above $19,500 as whales profited.
On Dec. 15, Ki Young Ju, the CEO of CryptoQuant, said that he is reducing his position due to the increase in whales’ deposits to exchanges. He tweeted that he had realized profit at $19,250 and switched from generational long (10x) to normal long (10x). He further said that the exchanges inflow showed that $BTC whales were depositing to exchanges and they needed more time to realize profits.
The key for Bitcoin is to remain above the $18,800 support level since holding this level would be a bullish sign which may propel BTC to have another go at a new all-time high.
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