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Key Points
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After Bitcoin and Ethereum hit fresh annual lows under $18,000 and $900 on Saturday, cryptocurrency market sentiment has stabilized.
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Bitcoin has bounced over 18% to the upper $20,000s and Ethereum over 30% to the mid-$1,100s.
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FOMO on the dip, retail buying and profit-taking on short positions have all been cited as supporting crypto prices.
If panic was the mood of the day on Saturday, relief is the dominant feeling in cryptocurrency markets on Monday. After falling to its lowest level since January 2021 around $760 billion, total cryptocurrency market capitalization has recovered more than 16% to around $890 billion.
Bitcoin and Ethereum, the world’s largest two cryptocurrencies by market cap that account for more than 60% of the crypto market, drove the drop and subsequent rebound. BTC/USD slumped as low as $17,593 on Saturday but has since recovered over 17% to the $20,700s. Meanwhile, after falling as low as $880 per token, ETH/USD has bounced more than 30% to around $1,150.
Bitcoin futures long positions worth over $170 million were liquidated on Saturday, CoinGlass data showed, the fourth highest in the last three months. Meanwhile, over the course of the same day, $120 million worth of Ethereum long positions were liquidated, though daily liquidations of around this level haven’t been uncommon to see in Ethereum markets this month amid recent turmoil.
If so many traders have been stung by the recent drop, how is it that crypto prices have been able to mount such as impressive recovery on Sunday and Monday?
What’s Driving the Rebound?
Crypto market commentators have proposed a variety of explanations as driving the most recent rebound from lows. Analysts said that Fear Of Missing Out (FOMO) on buying into the dip was likely at play. Selini Capital CIO Jordi Alexander told CoinDesk over the weekend that “willing buyers have been in cash waiting to buy cheap coins,” and that “they have to determine if they will get to buy another 20% lower, or if this is their chance”. “If they wait too long, they will have to chase higher,” he noted, highlighting the FOMO.
According to comments made by National Alliance Securities head of fixed income Andrew Brenner on Monday, dip-buying by retail investors was a major driver of the weekend rebound, given professional investors are less active at this time. Many retail investors trade/buy crypto via mobile apps, through which they would have been able to track the weekend’s price action.
Others cited profit-taking by those holding crypto short-positions as technical indicators point to an increasingly over-sold market as driving the rebound. For example, Bitcoin’s 14-Day Relative Strength Index fell below 20 for the first time since March 2020 on Saturday. The last time that Bitcoin’s RSI fell to comparable levels back in January of this year, prices recovered by as much as 35% over the next two months.
Is the Latest Rebound a Bull Trap?
Some analysts have warned that the latest rally could be a so-called “bull-trap” – a rebound that encourages investors to re-enter ultimately unprofitable long positions.
FX Empire’s head of crypto analysis Bob Mason stated on Sunday that “investor sentiment towards Fed monetary policy and investor fears of a global recession remain headwinds (in the) near-term” for cryptocurrency markets. “Barring a marked decline in inflationary pressure, volatility will likely persist as investors digest economic data and central bank forward guidance,” he continued.
Mason pointed out that Bitcoin Fear & Greed Index remains in the “Extreme Fear” zone at just 9/100 on Monday, though this is admittedly above Saturday’s levels of 6/100. The last time the index was as weak as it was on Saturday was in March 2020 when Bitcoin was changing hands for under $10,000.
This article was originally posted on FX Empire
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