Will Bitcoin Go Up?

The market is holding up quite well here huh? Looks like it - at a surface level that is. Let's look behind the curtains.
by Yoaquim Boom
May 10, 2023

Looking Behind the Curtains

This might get technical, so buckle up.

Here's an interesting question to ponder:

When perpetual shorts are up, what do you think happens to spot markets? Let's explore this topic and dive into some key aspects:

When you open a short position, you are essentially borrowing an asset.

But where does that asset come from? It can be another user on the exchange or the exchange itself, typically from a lending pool.

Exchanges that offer leverage usually require deep lending pools to provide the necessary assets.

The majority of assets used in perpetual markets are sourced from these lending pools.

Now, you might wonder, what happens when exchanges face losses?

Well, let's also consider funding rates.

If the funding rate is high, it can increase demand for borrowed assets from the lending pool, causing a temporary shortage of assets.

In situations where shorts are high, especially high-leverage shorts, it can create a paradoxical scenario where exchanges buy assets to lend them to you for your short position.

This can strain the liquidity of the lending pool.

The recent collapse of FTT (FTX token) serves as a great example of this dynamic. When shorts are abundant and liquidity is low, it can lead to a shortage of available assets and impact the market.

Forgot about FTT? Here's the chart as a reminder...

Exchanges closely monitor lending activity to ensure sufficient assets for trading and manage supply and demand imbalances.

But what happens when there are no organic spot buys but a surplus of retail shorts? Let's find out.

In such situations, the continuous shorting activity can keep the market moving sideways.

It can even create a bottom if the liquidity is low. However, if shorts give up and there's less incentive for market makers to provide liquidity, it can result in a market sell-off.

In crypto, we often see sharp price drops from highs rather than local bottoms.

So, where do you think we are currently positioned in this cycle? Are we likely to witness another significant altcoin run like at the start of this cycle?

Many believe that the overall market is still in an uptrend but is becoming more exhausted. Altcoins seem to lag and get sold off during Bitcoin pumps. However, it's important to note the narrative surrounding a banking crisis and its impact on crypto.

The narrative suggests that a banking crisis will trigger a nuke in the crypto market, leading to a macro recession. However, it's crucial to understand that financial institutions aren't buying cryptocurrencies to hedge against a banking crisis.

In reality, the market might be manipulated to capitalize on the banking crisis narrative. The altcoin market is betting on this being a sucker's rally, while the banking crisis itself provides a reason for continued market strength.

Nevertheless, storing money at the bank is still considered a risk amid the ongoing crisis.

So, keep a close eye on how these dynamics unfold and the potential impact on spot markets and altcoins.

If you don't - I will for you so just keep opening these emails and you'll be all caught up.

I don't know where the market goes from here.

I admit that, but we're in a tough spot where the only reasons we're up here are 1. SHORTS and 2. HOPE.

And honestly, personally, I don't like that combination one bit.

So what is the likely path for Bitcoin here?

We've established a major reason for Bitcoin's current price is the constant squeezing of shorts (closing shorts and therefore turning them into longs - ultimately increasing the price).

Additionally, we've established the liquidity crunch amongst exchanges and the macroeconomic situation as it relates to the banking crisis.

So what about the chart?

The chart speaks volumes - bitcoin rejected from the 32.000 resistance level and has since been unable to form a proper retest of that level.

Now it's forming some support at 27500, although the chart seems weak and will struggle to hold onto these prices much longer.

Amongst all these listed conditions a retest of 25000 seems in the works.