Traders Unconvinced of Crypto Bounce, Will Shorts See Pain?
After a brief retest of higher levels, Bitcoin and the crypto market pulled back, giving back the gains made over yesterday’s trading session. The general mood in the market has been negative, and a large majority of players expect further losses.
At the time of writing, the price of Bitcoin is trading at $19,600 with 3% and 8% losses over the last 24 hours and 7 days respectively. The first crypto by market cap is one of the worst performers in the market, surpassed only by Dogecoin and Ethereum with losses of 4% and 3.7% in the last day.
On the daily chart, the total crypto market capitalization consolidated between $800 billion and $1.2 trillion coming in from a massive crash in April and June. The sector moved higher and found support on a trend line that was pierced in the last week.
Thus, the sector may be unable to sustain its current levels as the daily chart suggests further losses and a potential re-test of its June lows somewhere around $800 billion.
Data from research firm Santiment highlights an important increase in short positions as digital assets trend down. As shown in the chart below, traders have been shorting the price of Bitcoin as the price consolidates.
This has led to sudden spikes in funding rates that take them into positive-negative territory, meaning traders expect bearish price action. The chart shows problems for this market participant.
In August, when traders positioned themselves for more gains or losses, the market tends to trend in the opposite direction. Last week shorts were hurt as the market trended up, and then longs were hurt and the market went in the opposite direction. Sentiment so:
Traders continue to short when prices see a significant price dump. According to the average funding rate of $BTC across Binance, BitMEX, DYDX and FTX, the reaction to Friday’s drop was the most aggressive traders went against the markets since May.
Will Crypto See Another Helper Rally?
Additional data provided by analyst Justin Bennett indicates that the overall crypto market capitalization, as mentioned, broke below the bottom of an important trend line. However, Bennett believes the chart suggests a pullback to previous support.
As shown in the chart below, this could push cryptocurrencies to a 3% to 5% gain before a crash to around $800 billion. For the altcoins sector, this pullback could portend a significant crash. Bennett said:
And to everyone who says altcoins won’t pull back that far… They already did once. Alts retreated over 90% during the last bear market. So to think they will stop at -74% this time with rampant inflation, a global recession, etc. is naive, in my opinion.
Maybe a further +3-5% for #crypto before we get any significant retests. 👀$TOTAL pic.twitter.com/ewUIAXPPRI
— Justin Bennett (@JustinBennettFX) 29 August 2022
