Bitcoin cryptocurrency surge lacks extreme leverage that has fueled its past rallies

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On the rise in five of the last seven sessions, Bitcoin has steadily increased

One of its usual star players is still missing Bitcoin’s rebound from the depths of July: Leverage. Crypto traders have yet to significantly stack on leverage – essentially borrowed money that can magnify returns or losses – as they have in previous rallies. The spread between Bitcoin futures contracts and its spot price narrowed compared to February, when the cryptocurrency was in the midst of a rally that eventually reached an all-time high, suggesting that demand for long positions leverage remains low.

For Stéphane Ouellette of FRNT Financial, this could suggest two things – the first being that traders are not convinced that Bitcoin’s return to over $ 46,000 is a real breakout. But in Ouellette’s eyes, the most likely scenario is that leveraged players are yet to come, judging by the trajectory of past rallies – and if they do, that would make the recent wave of price predictions $ 100,000 more likely to materialize, he said. .

Typically, we see this as an authoritarian rally, which implies that the leveraged part of the rally will come later, Ouellette, co-founder and CEO of FRNT, said on the QuickTake Stock streaming program. from Bloomberg. If so, I would say those $ 100,000 targets are very reasonable. The last time we saw a move in this little leverage, we were pointing towards $ 20,000, and we didn’t really see leverage come into the market aggressively until we hit $ 40,000, which brought us to $ 65,000.

Photo credit: Bloomberg

Up in five of the last seven sessions, Bitcoin has been steadily rising, breaking above key levels that the bulls believe are precipitating a new rally. That includes Friday, when the coin continued its uptrend, rising 4.9% to $ 46,679. And it’s up about 50% since hitting a recent low that took it below $ 30,000 at some point this summer.

In the cryptosphere, the use of leverage to increase returns – which makes traders vulnerable to automatically selling their positions if prices fall – has been in the spotlight in recent months. Many have said that a price slump in May, which led to service outages on some of the biggest exchanges, was exacerbated by the erasure of leveraged positions. According to some, the sale led to over 775,000 traders to liquidate their accounts over a 24-hour period, which equates to roughly $ 8.6 billion worth of crypto.

Since then, two of the biggest crypto exchanges – Binance and FTX Trading – have reduced the maximum leverage offered to traders. Last month, the two topped it at 20 times, compared to over 100 for each. Although they have decided to curb the most extreme use of the strategy, they are far from deactivating it – 20 times the leverage offered in standard US stock accounts.

Crypto Exchanges FTX, Binance Limits Traders To 20X Leverage

But right now, Bitcoin is defying a build-up of negative headlines, including criticism of its impact on the environment, and is moving forward even as regulators around the world promise tougher scrutiny. China, for its part, has taken a number of steps to crack down on crypto mining, as U.S. policymakers focus on digital assets in a new way. U.S. Securities and Exchange Commission Chairman Gary Gensler recently called the space Wild West and said he would not compromise on investor protection by establishing a regulatory framework.

Hunter Horsley, CEO of Bitwise Asset Management, said these developments indicate greater regulatory clarity, something the crypto community has always dreamed of and could help attract new investors.

Crypto is receiving an incredible gift right now, which is that it has started the journey from a nascent but unreliable space to a space that people believe has strong regulatory reins and permeates all parts of space, he said. during a telephone interview. It’s an amazing unlock and perhaps the most important thing that really happens in crypto.

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