Moments of maximum tension, doubts, and shocks lived the crypto ecosystem at the beginning of the week when the price of bitcoin fell 23% from its All-Time-High of USD 58K reached at the weekend to USD 44,800. However, the major cryptocurrency once again demonstrated its strength and bounced back to the $ 50,000 zone in less than 24 hours. What were the reasons for this rapid recovery?
The first reason that analysts found was the drop in Bitcoin futures funding rates. In major futures exchanges, including Binance, Bybit, and Bitfinex, Bitcoin’s funding rate dropped to 0.01%, when it was consistently above 0.1% for the entirety of the bullish rally that led to the price of bitcoin. from $ 40,000 to its ATH of $ 58,000.
When the futures financing rate is high, it means that the market is crowded with buyers and the hike is likely to have spread too far and is coming to an end. This creates a significant risk of prolonged compression, which can cause the price of Bitcoin to drop rapidly in a short period.
Then, with the funding rate back at 0.01%, the risk of a long contraction is significantly less and if a new uptrend occurs, the rise could be more sustainable.
On the other hand, if Bitcoin can reach and sustain above $ 50,600, which has become a support area, the probability of a rally towards the next resistance level at $ 56,000 increases.
Lastly, it is common for Bitcoin to suffer corrections after a bullish rally. The history of the main cryptocurrency says that after significant rises the market corrected in double-digit percentages. In addition, it is the end of February and traditionally this time of year usually leads to decreases in the price of bitcoin.