Cryptocurrencies rebounded on Wednesday as short sellers covered positions ahead of Tesla CEO Elon Musk’s appearance at The B Word Conference. Bitcoin was trading at around $32,000 at press time and is up 8% over the past 24 hours. The sharp price bounce reflects positive sentiment in an attempt to reverse a monthlong downtrend largely driven by regulatory uncertainty.
During The B Word conference on Wednesday, Musk boosted bullish sentiment as he announced that SpaceX, one of the companies he founded, holds bitcoin on its balance sheet. Musk also stated that he personally owns ether. The announcement contributed to the rising prices across cryptocurrencies on Wednesday with ether breaking above $2,000 for the first time since July 14.
- S&P 500: 4358.7, +0.82%
- Gold: $1804.2, -0.34%
- 10-year Treasury yield closed 1.293%, compared with 1.214% on Tuesday.
“We see that volumes of trading have increased at the lower price levels, presumably because people are buying the dip,” Kirill Suslov, CEO of trading app TabTrader, wrote in an email to CoinDesk.
There is also word that environmental concerns are starting to wane as miners adjust operations to reduce their carbon footprint. The result could encourage those larger investors waiting for an appropriate time to allocate money to cryptocurrencies while fulfilling their environmental, social and governance (ESG) mandate.
“China’s mining crackdown has drastically improved bitcoin’s environmental impact as miners have headed to the cheapest sources of energy on the planet, which more often than not are renewable, and a lot of older and more inefficient mining equipment has been taken offline,” Alexandra Clark, a sales trader at GlobalBlock, wrote in an email to CoinDesk.
Not all analysts are convinced that bitcoin will continue higher.
“Bitcoin and the [wider] cryptocurrency basket have completely unwound their overbought conditions and are no longer stretched,” MRB Partners wrote in an email to CoinDesk.
“That said, this does not suggest that another rally looms, it simply implies that cyclically speaking these digital currencies are less overbought with its cyclical trend now facing downward pressure,” MRB wrote.
Bitcoin futures positioning
The number of open positions in bitcoin futures continues to rise, and what appears to be a proliferation of short sellers indicates a dour market mood. That may bring volatility on the higher side, wrote CoinDesk’s Omkar Godbole.
Open interest, or the number of futures contracts traded but not squared off with an offsetting position, reached the highest tally since May 18 on Tuesday, according to data from the blockchain analytics firm Glassnode. The dollar value of the number of contracts open remained flat at around $12 billion.
All things considered, the futures market is mainly biased bearish, which leaves the door open for sharp corrective rallies in bitcoin’s price. When leverage is skewed to the bearish side, a move higher often results in forced closure of short positions (exchanges square off shorts). That, in turn, puts upward pressure on the cryptocurrency’s price, leading to exaggerated price moves.
Crypto sentiment has reached a new low, according to some “fear/greed” measures. It is likely that extreme fear caused shorts to cover positions as bitcoin dipped to below $30,000 on Tuesday.
“Many indicators are leaning towards a generally fearful environment at the moment,” Arcane Research wrote in a research note on Tuesday.
Arcane cautioned that investors should beware of the timeliness of some fear/greed measures, especially in traditional markets.
“Keep in mind what happened as fear loomed on March 12, 2020, when the CNN Fear & Greed index reached an extreme low of…