The Current Bitcoin Rally Is Losing Its Steam

After recently reaching their highest levels in months, the price of bitcoin and other cryptocurrencies declined on Tuesday. Analysts are still expecting Bitcoin to rise, but there are signs that the most recent cryptocurrency boom may be slowing down.

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After recently trading above $25,000, the price of BitcoinBTCUSD -0.39% has decreased by less than 1% over the previous 24 hours to $24,650. Since last June, the largest digital asset hasn't continuously traded above these levels. Bitcoin has risen by around 50% this year thanks to a rally that began in 2023, rescuing digital assets from a harsh bear market and multi-year lows. But, Bitcoin is still well behind its top at $69,000 that it reached in late 2021.

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Bitcoin keeps attempting to overcome resistance at $25,000 On Monday, volatility was reduced since the main factor causing it—U.S. Equity markets were closed yesterday, according to analyst Alex Kuptsikevich at the firm FxPro. "Intraday pullbacks from this barrier are getting smaller, indicating a prolonged buying-the-dip pattern, despite Bitcoin's futile attempts to consolidate above $25,000. It won't be long until there is a break above $25,000, which might lead to $28,000.

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Bitcoin is likely to continue following stock market trends, but cryptocurrency prices recently deviated from their historical ties to the Dow Jones Industrial Average and S&P 500. Throughout the past year, digital assets and equities have been linked by a challenging macroeconomic backdrop of high inflation and rising interest rates, but the most recent crypto boom has far surpassed anything seen in the stock market. The majority of Bitcoin's advance has been driven by crypto-specific factors, such as positioning in futures markets and price pressure from technical considerations.

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“Massive short liquidations propelled the move” to Bitcoin at $25,000, analysts at crypto exchange Bitfinex stated in a note, referring to dynamics in the Bitcoin futures market, which is the most liquid in all of crypto. Shorts are wagers against Bitcoin that are frequently made using borrowed funds. If the market moves higher, brokers may "liquidate" or forcibly close these positions. The procedure may result in buy orders that amplify the price increase.

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Gains based on technical, not fundamental, grounds are represented by a rally that is being driven by short liquidations. The Bitfinex researchers highlighted that traders are placing nearly similar value on put and call options, which are bets that prices will rise or fall, respectively. Positioning in the cryptocurrency options market also implies that mood has cooled, according to the analysts.

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But, these market tendencies do not indicate that a turnabout is imminent. Instead, the market may be stabilizing as a result of the moderating emotion and price swings that have also eliminated traders who are "long" Bitcoin, with almost $250 million in these optimistic bets being liquidated in a crash on February 10.

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"For the past two weeks, the price of bitcoin has been chasing both overly leveraged long positions and overly eager short positions. In the process, it rose to an eight-month high, according to the Bitfinex experts. A range formation has historically been the consequence of this kind of price activity, where both longs and shorts are erased simultaneously.

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Outside Bitcoin, the second-largest cryptocurrency, EtherETHUSD -1.37%, fell 1.5% to $1,675. Smaller cryptos or altcoins were even further in the red, with Cardano crumbling 3% and PolygonMATICUSD –4.85% dropping 5%. DogecoinDOGEUSD -2.16% and Shiba InuSHIBUSD -2.31%, two memecoins, both had modest losses of 2% and 3%, respectively.