In the stock markets and in the cryptocurrency sector, traders are always looking for a specific reason to explain the price behavior of an asset, which means it is important to stress that correlation does not imply causation.
While it may be easy to link a pending regulatory statement or legislation to the outcome of an asset’s price, there is not always conclusive evidence that these were the exact driving forces. Some of the indications below may have appeared due to sheer chance, although the coincidence has persisted throughout history.
For example, Bitcoin’s (BTC) rally to $48,200 on October 1 could have been linked to comments on September 30 by US Federal Reserve Chairman Jerome Powell. When asked to clarify his comments on the central bank digital currency (CBDC), Powell asserted that the Fed had no intention of banning cryptocurrencies.
Another possible reason for the current rally is the 7-day average Bitcoin hash rate, which jumps to 145 exaheshes per second (EH/s), the highest level since the sudden crash in early June when mining in China became more robust.
Finally, the rising expectation of approval from the US Bitcoin Trading Fund (ETF). The Securities and Exchange Commission (SEC) played an important role in the traders’ recent bullish project.
What is clear is that several factors pushed the pump to $49,000 last week, and today it looks like the bulls are trying to reclaim $50,000. So let’s take a look at three indicators that signaled buying before the recent price action.
UNI made the bet after merchants turned their attention to DeFi
Uniswap (UNI, left) vs. Bitcoin (BTC, right). Source: TradingView
UNI, the token for the Uniswap decentralized exchange, was pumped a few hours before the October 1 meeting. Altcoin started increasing its price at the end of the month in UTC, initially rising 5% to $24.20 from $23. The move was followed by another 4% jump to $25.20, three hours before bitcoin broke above $45,000.
Ironically, DEX volumes started to pick up after China imposed additional restrictions on Bitcoin last week. A reasonable explanation for this move is that investors are beginning to understand that China’s actions will not affect trading volume. With the move to DEX, the ability of governments to control or restrict cryptocurrency adoption is significantly reduced or restricted.
Derivatives exchange shorts
Many exchanges provide useful information on clients’ net exposure by measuring their positions or by consolidating data from the spot and derivative markets. For example, the buy/sell ratio of OKEx traders decreased from 1.25 (prefer long positions) to 0.72 (prefer short) by 28% in less than two days.
This may seem illogical at first, indicating that whales are ramping up bearish efforts, but when market expectations are not met, extreme price movements usually occur. If most traders anticipate positive price volatility, the result is likely to be already appreciated.
Ratio of long and short positions in OKEx Derivatives. Source: OKEx
Opening Interest in Binance Futures Suddenly Rise
Regardless of the underlying asset, the forward contract always matches the long position (buyers) and the short position (sellers). This means that it is impossible to predict whether these investors will tilt in one direction or the other.
The sudden increase in open interest, which reflects the total number of contracts still in use, reflects confidence. The higher the concept, the greater the effort.
Open interest on Binance Bitcoin Futures. Source: Binance
Notice how open interest for both perpetual and currency contracts in USDT increased during the four hours before 6:00 UTC. Interestingly, even with additional bets of $400 million, the price of Bitcoin did not reach significantly until after the peak of open interest.
The truth is that no one may want to reveal the cause of the actual rally, but by tracking similar patterns in the future, traders will be able to anticipate price hikes. Of course, there is no guarantee that all three indicators will be replicated, but the cost of monitoring the data is minimal.