Bitcoin (BTC) quickly recovered from $ 44,800 to over $ 50,000 in just 22 hours.
There are three main factors behind the rapid recovery, including low funding rates, the $ 170 million purchase of Squares’ bitcoins, and immediate market stability.
Bitcoin futures financing rates are dropping dramatically
On major futures exchanges including Binance, Bybit and Bitfinex, the Bitcoin funding ratio has fallen to 0.01%.
Bitcoin futures financing rate consistently exceeded 0.1% throughout the rally from $ 40,000 to $ 58,000.
When the futures financing ratio is high, this means that the market is crowded with buyers and the rise is likely to continue.
This poses a significant risk of long-term pressure that could lead to a rapid drop in the Bitcoin price in a short time.
If the funding rate returns to 0.01%, the risk of long-term pressure is much lower, and if it follows a new trend, growth may be more sustainable.
Square buys BTC for $ 170 million
On February 24, the US payment giant Square bought $ 170 million Bitcoin. This happened after buying Bitcoins worth $ 50 million on October 8, 2020. At that time, Amrita Ahuja, Square’s CFO, said:
“We believe that Bitcoin may become a more mainstream currency in the future. As it becomes more prevalent, we intend to learn and participate in a disciplined way. For a company that creates products based on a more inclusive future, this investment is a step in that journey.”
Bitcoin additional purchase is important because it shows that the company has confidence in bitcoins for the long term.
The bitcoin price is much higher than it was in August 2020, indicating that organizations’ confidence increases as the price rises.
The spot market is stabilizing
When Bitcoin corrected itself, the price on spot exchanges like Coinbase was much lower than it was on futures exchanges.
For example, on February 23, Bitcoin traded down $ 600 on Coinbase, while the price was close to $ 44,800.
When Bitcoin’s price initially recovered from $ 44,800 to $ 48,000, it was a sign of a re-test of a bearish one.
John Chow, Director of Global Expansion at GroundX, said:
“We expected it, but didn’t think it would happen soon or quickly. A good bounce from here would be perfect. Because it would meet a 30% ATH bounce.”
Since then, Bitcoin price has recovered by more than $ 50,000, and this may have reduced the likelihood of a retest for a bear market and the possibility of more downsides.
In the short term, if Bitcoin continues to stay above $ 50,600, which becomes a support zone, the probability of a rise to the next resistance level will increase by $ 56,000.
Finally, these corrections are completely normal for a bull market cycle for Bitcoin, as Cointelegraph previously indicated. In fact, it was popular on the beef market in 2017, with nine major shifts ranging from 20% to 40%. But despite these repeated “serious” adjustments, the Bitcoin price continued to rise twenty times from its highest level ever during that year.