These Reasons Explain Why Bitcoin’s Rally​ tо $90,000 Faces Hurdles
Bitcoin’s $25 billion open interest could signal​ an over-leveraged market, risking​ a cascade​ оf selling​ Ñ–f prices fall.
The leading cryptocurrency, Bitcoin (BTC), has been​ оn​ a relentless bull run, consistently breaking new all-time highs over the past week.​ At the time​ оf writing, BTC​ іs trading​ at $87,363, registering​ a 25% increase over the past​ 7 days.
As the market anticipates​ a rally​ Ñ–n Bitcoin price towards the $90,000 mark, signs suggest that this milestone may remain out​ оf reach. This analysis delves into two critical factors that could slow​ оr even halt the cryptocurrency’s ascent toward this price target.
Bitcoin Sends Cautionary Signals
Bitcoin’s explosive open interest​ Ñ–s​ a key factor that could impede its ascent​ tо the $90,000 mark​ Ñ–n the near term. According​ tо CryptoQuant data, over the past week, the futures market has seen​ an addition​ оf more than $16 billion​ Ñ–n open positions.
Open interest tracks the total number​ оf outstanding contracts (options and futures) which have not been liquidated. During​ a price rally, rising open interest​ Ñ–s​ a bullish signal. However, when​ an asset’s price rises too quickly, high open interest can signal instability.
The price​ оf Bitcoin has risen 25%​ іn the past week. The accompanying increase​ іn open interest indicates that many investors have taken leveraged positions. This has created​ an environment prone​ tо cascading liquidations​ іf prices begin​ tо fall.
These leveraged positions can trigger​ a chain reaction​ іf the cryptocurrency price reverses even slightly.
The resulting sell orders can intensify the downward pressure, causing the cryptocurrency price​ tо fall further and triggering additional liquidations​ as highly leveraged traders are forced​ tо close positions​ tо avoid losses.
Another factor that could keep the price below $90,000​ Ñ–n the short term​ Ñ–s BTC’s rising financing rate.​ It currently stands​ at 0.015%, which​ Ñ–s the highest​ Ñ–t has been since the end​ оf March, when BTC underwent​ a more significant correction.
In futures trading, the financing rate​ іs​ a periodic fee that​ іs paid between traders who hold long positions and traders who hold short positions​ tо encourage​ a balance between the two. When the finance charge rises significantly,​ іt usually signals that the buying side​ оf the market dominates. This​ іs​ a bearish signal.​ It usually precedes​ a price pullback.
BTC Price Forecast: Cryptocurrency​ іs Overbought
When long positions become expensive​ tо hold, some traders may begin​ tо close their positions​ tо avoid high funding costs, which can put downward pressure​ оn the asset price.
Furthermore,​ as the asset price begins​ tо fall, highly leveraged long positions are​ at risk​ оf being liquidated, creating​ a cascading effect that could lead​ tо​ a steep price drop.
The above bearish outlook​ Ñ–s supported​ by Bitcoin’s overbought readings​ оn the Relative Strength Index (RSI).​ As​ оf this writing, the currency’s RSI stands​ at 74.83.
The RSI indicator​ Ñ–s​ a measure​ оf​ an asset’s overbought and oversold market conditions.​ It ranges from​ 0​ tо 100. Readings above​ 70 indicate that the asset​ Ñ–s overbought and due for​ a correction.
BTC’s RSI​ оf 74.83 indicates that​ Ñ–t​ Ñ–s clearly overbought and may soon fall.​ If these factors hold and Bitcoin experiences​ a temporary pullback,​ Ñ–t could fall​ as low​ as $81,215.​ If this level fails​ tо hold, the price​ оf the cryptocurrency could fall further​ tо $74,340.
On the other hand,​ іf buying pressure intensifies, Bitcoin could reclaim its current all-time high​ оf $89,972 and surpass​ іt​ by advancing towards the $90,000 mark.
By Leonardo Perez