Why did Bitcoin rise today?

▲ Bitcoin (BTC)/AI generated image ©

Bitcoin (BTC), which had been showing a dull trend recently, staged a strong rebound in just one day, drawing the attention of investors. It has been revealed that the forced liquidation chain reaction of futures traders who had bet on a decline is deeply embedded behind this rally.

According to CoinMarketCap, a cryptocurrency market data aggregator, on May 24 (local time), the price of Bitcoin rose by 2.06% compared to 24 hours ago, reaching $76,811.75, aligning with the average increase of 2.06% across the entire cryptocurrency market. The decisive factor that triggered this surge was a large-scale short squeeze (buying pressure that occurs to close or cover short positions) in the derivatives market. Analysis of futures market data revealed that a total of $125.77 million worth of forced liquidations were executed in Bitcoin positions over the past 24 hours, with a staggering 94.9% of this, or $119.36 million, identified as short positions that had bet on a decline. This created a feedback loop where leveraged investors who anticipated a decline were forced to participate in buying due to the price rebound, further amplifying the rise.

In addition to technical factors in the futures market, changes in the macroeconomic environment also contributed to improved investor sentiment. With the official inauguration of Kevin Warsh as the new Chairman of the US Federal Reserve (Fed) on May 22, expectations spread that the downward pressure that had previously weighed on risk asset markets might ease somewhat. Financial market experts are focusing on the possibility that the Fed's monetary policy may shift towards a market-friendly direction due to the new chairman's appointment, and Bitcoin is also showing close synchronization with this macroeconomic narrative of traditional finance.

However, some parts of the market are taking a cautious stance on the sustainability of this rally, as it is based on a short squeeze not supported by organic spot demand. Indeed, in the US Bitcoin spot ETF market, which serves as a gauge for institutional investor buying, institutional capital outflows have not completely stopped, with a net outflow of $69 million recorded on May 23 alone. Experts point out that for this rebound to transition into a true uptrend, a change in fundamentals, specifically a rapid reversal of spot ETF fund flows into net inflows within the next 24 to 48 hours, must precede it.

From a technical analysis perspective, Bitcoin has successfully defended its Fibonacci support level of $76,082. If the daily candle closes above the 7-day Simple Moving Average (SMA) of $76,899 at the current price level, a retest of the next short-term resistance, the 50% Fibonacci retracement level of $78,523, is likely. Conversely, if buying pressure subsides and fails to secure the support level, the price could fall back to the recent intraday low of $74,255. Therefore, with the 14-day Relative Strength Index (RSI) at 40.57, leaving room for further upside, it is crucial to closely monitor the influx of spot demand.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*