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Bitcoin is in rally mode, posting its largest daily gain in six weeks as shorts covered positions over the weekend. The cryptocurrency was trading around $38,874 at press time and is up 14.5% over the past 24 hours. Sentiment has shifted from extreme bearishness after a sharp correction in May and two months of consolidation between $30,000 and $40,000.
Some analysts expect further upside and view the recent bounce as a trend reversal.
“We turned bullish last Wednesday but weren’t expecting the short squeeze to happen quite so soon,” wrote QCP Capital in a Telegram chat. “We’ve been pleasantly surprised by how supported the market was after Wednesday and sentiment flipped decisively bullish into the weekend.”
“This move higher feels more like a bounce back into a neutral state after being overstretched to the downside below $30K,” QCP wrote. “The real pain could be lurking from short gamma positions above the $40K level.”
“Bitcoin momentum is back, and incremental endorsements on Wall Street could easily be the catalyst to help prices rally towards the $45,000 level,” wrote Edward Moya, strategist at Oanda, in an email to CoinDesk.
Blockchain metrics are also showing positive signs for bitcoin.
“Bitcoin has slowly trickled back into the hands of longer-term holders throughout these months after the dramatic sell-off from all-time highs in May,” wrote Sean Rooney, head of research at crypto asset manager Valkyrie Investments, in an email to CoinDesk.
“Historically this trend of entities that hold long term does not reverse quickly, which will likely result in further advance in price as we move towards Q4,” Rooney wrote.
The strong bounce in bitcoin over the weekend occurred as shorts covered positions. Roughly 2,000 short positions were liquidated over a two-hour period, according to data from CryptoQuant.
The short-squeeze rally occurred despite regulatory pressure surrounding stablecoins.
“The short order liquidation amount in the past hour reached $640 million, which is the largest single-day liquidation volume in more than two months,” wrote WuBlockchain in a tweet on Monday.
Chart shows recent spike in bitcoin short liquidations.Source: CryptoQuant
A strike price of $40,000 represents the largest source of open interest for the upcoming bitcoin options expiry this Friday, which could be a source of volatility.
“BTC has been rangebound between $28K-$43K and most expect an upside squeeze to occur on a break above $40K,” wrote Coinbase in a newsletter to institutional clients on Saturday.
“But with overwriting strategies forced to settle on lower strikes ($35K-$38K), a sharp short-covering rally will likely begin from lower levels,” Coinbase wrote.
Chart shows bitcoin open interest by strike price.Source: Skew
They missed out.
Investors pulled money out of digital-asset funds as bitcoin dipped below $30,000 last week, according to a report Monday by CoinShares. Outflows coincided with negative sentiment that preceded a near-24% price jump in bitcoin over the past seven days.
Monday’s crypto price rally – bitcoin jumped above $38,000 – could encourage digital-asset inflows because many investors have been on the sidelines since the sell-off in May.
Chart shows weekly digital asset fund flows.Source: CoinShares
Most digital assets on CoinDesk 20 ended up higher on Monday.
Notable winners as of 21:00 UTC (4:00 p.m. ET):
aave (AAVE) +16.2%
bitcoin cash (BCH) +15.4%