Tuesday, 7 April 2020

Bitcoin Spikes by 2x in 26 Days: What's Actually Behind the Big Rally?

btc spike

The Bitcoin (BTC) price has increased by two-fold in less than a month, surging from $3,600 to over $7,350. While traders believe a combination of many factors caused the upsurge, there are three main factors that likely contributed to it.
The three factors are a significant surge in spot buys, a massively overextended plunge below $4,000, and the immediate recovery of BTC to major support levels.

Factor 1: Bitcoin spot buys on the rise


Coinbase, Kraken, Binance, Bitfinex and other spot exchanges saw a substantial spike in buy volume following the March 13 drop that led BTC to drop from $8,000 to $3,600 within a 24-hour span.
Simultaneously, open interest—a term used to describe the total number of long and short contracts open at a given time—plunged across major futures exchanges including BitMEX, Binance Futures, and OKEx.

The sharp decline in open interest on futures exchanges and the clear increase in spot buy volume essentially led to a shift in the market. The spot exchange market began to control the price trend of Bitcoin, rather than the futures market.
The futures market often causes extreme volatility in the Bitcoin price because traders use leverage (borrowed funds) to trade cryptocurrencies, whereas in the spot market, investors are selling and buying Bitcoin without borrowed capital.

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