Cryptocurrency Surge: Bitcoin and Ethereum Prices Rise Amid Potential Market Instability
Summary:
The recent rally in Bitcoin (BTC) and Ethereum (ETH) has brought trading activity to near-record levels, possibly indicating an overheated market and potential price volatility. Despite this, Bitcoin has seen more than a 50% rise over the past month, nearing its all-time high, and Ethereum has similarly seen a significant rise in value. While this pattern suggests potential market instability, it doesn't change the fundamental dynamics of these cryptocurrencies with fresh all-time highs widely expected in this current cycle. However, the frenzied trading behavior, which is also fuelled by a fear of missing out, suggests a possibly unstable market. The emphasis is on having a robust trading strategy, relying on data and charts, and remaining calm amid market turbulence. The views and opinions expressed in the article are those of the author, Lucas Kiely, CIO at Yield App, and do not necessarily represent those of Cointelegraph.
The upswing in Bitcoin (BTC) and Ethereum (ETH) prices in the past few weeks has brought trading activity to near-peak levels, similar to the frenzied trading seen in 2021. This surge indicates that the cryptocurrencies are in a full bull market. However, these current trends also possibly signal an overheated market, with increased fluctuation for BTC and ETH prices likely ahead. This does not necessarily mean we are close to the ultimate highs of the cycle, but eager investors should proceed with caution, mindful of the high prices. Bitcoin has seen a rise of more than 50% over the previous month, nearing its all-time high, while Ethereum's value has soared by 50% during the same period. This acceleration in value, combined with technical indicators such as Bitcoin funding rates and open interest, suggests potential instability for these two leading cryptocurrencies.
Last week, the funding rates for Bitcoin perpetual futures on Binance exceeded 100% for the first time in at least a year. This indicates that the market leverage is tending towards being bullish. The increasing open interest reflects a surge in the number of open BTC and ETH derivative positions on exchanges, including long and short positions. High funding rates, notable price fluctuations, and rising open interest often alert traders, especially those using leverage. Open interest in Bitcoin reached $31 billion on March 4, surpassing the previous record set in April 2021. Around the same time, Bitcoin's price was hovering near current levels.
While open interest in ETH futures was approximately $12 billion as of March 4, approaching the peak seen in November 2021 when ETH was at an all-time high. A downturn of 17% came shortly after reaching the peak.
Despite these patterns, BTC and ETH have seen significant growth over the year leading to March 4. Bitcoin, for example, has experienced a surge of over 180%, reaching new highs in some major currencies such as the Argentine peso and the Japanese yen. ETH saw growth of more than 120% over the same 12 months.
Various factors have influenced Ethereum's slower growth compared to Bitcoin. The looming decision about a spot ETH ETF approval, for instance, might have held Ethereum back. This decision might lead to further price appreciation. The Bitcoin halving expected next month could also trigger a rise in prices, considering past trends.
However, while the increased open interest and funding rates identify potential instability, they do not affect the fundamental dynamics of BTC and ETH. It is widely expected that new all-time highs will be reached in this cycle. It is the frenzied trading behaviour, driven not only by professional traders and long-term cryptocurrency investors but also by fear of missing out, which raises concerns. Such market conditions are prone to crumble in the short term. Therefore, it’s essential to have a robust strategy and stay composed, avoiding emotional decisions. Options traders should rely on data and charts, not just rising prices. Meanwhile, buy-and-hold investors should be aware of the asset class's volatility. Remember, there are likely more opportunities ahead to capitalize on rising prices. A calm and strategic approach will be beneficial in navigating this bull run.
Lucas Kiely, the chief investment officer at Yield App, who previously managed QIS and Structured Derivatives trading at Credit Suisse in Hong Kong, and was the head of exotic derivatives at UBS in Australia, wrote this article. The content is for informational purposes only and should not be construed as legal or investment advice. The views and opinions expressed are those of the author alone and do not necessarily represent those of Cointelegraph.
Published At
3/5/2024 2:55:21 AM
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