FX.co ★ Bitcoin: bull rally or bull trap?

On Tuesday, Bitcoin added 3.91%, and today, as of writing, it has already grown by 2.86%.

The bullish rally over the past 24 hours has allowed the market capitalization of the entire crypto market to rise to over $1 trillion for the first time since October 5, 2022.

The main cryptocurrency was finally able to overcome the $20,000 mark. Moreover, BTCUSD has overcome the resistance at 20,381. Consolidation above will allow the price to continue rising towards the level of 21,700.

Key to explaining the rise of BTC

For the first time in three weeks, the price topped $20,000, a move that came as a surprise to many. More recently, concerns about inflation and macroeconomic uncertainty have dominated the cryptocurrency market.

However, yesterday saw an increase in the stock market as Microsoft and Google, among others, announced earnings. At the same time, risk appetite improved, and the dollar index collapsed, which most likely became the main key to the growth of BTC.

When DXY began to lose ground between 8 and 10 am EST, the price of Bitcoin surged shortly thereafter. During these two hours, the DXY index fell from 112.072 to 110.846 points. At the same time, the price of the main cryptocurrency showed initial strength, which then grew into a further rally. This phenomenon is not new.

For most of 2022, Bitcoin and the dollar index were in close inverse relationship, i.e. while DXY was rising, BTC was falling. Although the correlation has declined again in recent weeks, yesterday's movement may indicate a resumption of correlation.

Thus, whether Bitcoin can continue to rise may depend on the weakness of the DXY. In this regard, the Federal Reserve System is likely to again be in the focus of investors' attention.

Markets will then keep an eye on tomorrow's US GDP report to gauge future Fed policy. The US economy is currently expected to grow by 2.4% in the third quarter, which means that interest rate hikes are not having too much of a negative impact on the economy at this time.

This, in turn, may push the Fed to further raise interest rates. As the central bank recently confirmed, it will keep raising rates until something breaks.

The weakening economy may be just the first sign that the Fed will soon have to abandon its aggressive plan to raise interest rates. The next FOMC meeting on November 2 may provide more information on this.

Bull Rally: Don't Rush to Rejoice

Thus, yesterday's rally in cryptocurrencies was partly driven by the fall in the US dollar index and improved risk appetite. Technically, this might make you think that the cryptocurrency bottom may have already been reached. However, it would be premature to draw such linear conclusions now.

The US Federal Reserve is likely to make another 75 basis point hike at its November meeting, according to most analysts polled.

As interest rates rise, the crypto space may again find itself in serious turbulence, with the main cryptocurrency falling in price again.

Avalanche of liquidations: positions of 120,000 crypto traders destroyed

Nearly 120,000 crypto traders have their positions wiped out in the last 24 hours as Bitcoin surges above $20,000.

Data from derivatives analytics platform Coinglass shows that more than $806.39 million in long and short positions were liquidated on October 25.

Traders who bet on the downside of the crypto market have suffered. Coinglass shows that over $704.75 million in short positions were liquidated on Tuesday. On October 25, long positions were also closed for more than $101.39 million.

However, experts warn that the recent rally is likely preparation for a massive bull trap.

One analyst believes that Bitcoin will take another step higher before trapping the BTC bulls and fully correcting to its $14,000 bottom target.

"The fact that this retracement is happening before taking the last high is a good sign. In my opinion, we will see the last push up to $21,000 this week. Time pivots are October 27th and November 2nd (interest rates). Potential bottom about mid-November."