Bitcoin Surges Past $23K, Is the Rally Sustainable? (Analysis)

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Bit­coin has been mov­ing high­er as the equi­ty mar­kets fetched more gains. The world’s largest cryp­tocur­ren­cy by mar­ket cap­i­tal­iza­tion climbed over $23,000 on Tues­day. Since the begin­ning of the year, both Bit­coin and Ethereum added 40% surges to their tra­jec­to­ry, retract­ing the entire post-FTX dump.

Need­less to say, the ongo­ing ral­ly has sparked con­cerns over its sus­tain­abil­i­ty on the back­drop of last year’s blood­bath, as well as sub­se­quent numer­ous fake-out ral­lies. How­ev­er, the lat­est Ban­k­less report sug­gests that “there are rea­sons to believe that this ral­ly could have legs.”

‘Bears Out of Skies’

One of the major rea­sons point­ed out by Ban­k­less is that there is lit­tle to sug­gest that the mar­ket is over-lever­aged. 2022 saw a major de-lever­ag­ing event as cen­tral­ized infra­struc­tures came crum­bling down, which flushed out a gigan­tic por­tion of leverage.

Open inter­est on per­pet­u­al futures also saw a sig­nif­i­cant drawdown.

DeFi whales, for one, were “not par­tic­u­lar­ly over-lever­aged.” To trig­ger anoth­er event of cas­cad­ing liq­ui­da­tion sim­i­lar to that of FTX and COVID would, hence, require an “exoge­nous shock” as there is only $164 mil­lion of liq­ui­dat­a­ble ETH posi­tions above $1,000 across lend­ing pro­to­cols such as Mak­er, Aave, Com­pound, Euler, and Liquity.

“Although bat­tered play­ers like DCG remain, there is lit­tle to sug­gest that the mar­ket is over-lever­aged. Giv­en the mas­sive amount of short liq­ui­da­tions YTD, it appears as though it’s bears, not bulls, who are out over their skies.”

Gauging Further

The posi­tion­ing of investors and traders also sug­gests that the ral­ly could be sus­tain­able. Upon gaug­ing fur­ther, it was found that investors are hold­ing a large por­tion of their assets in cash. Mean­while, data from Nansen shows that the per­cent­age of large whale port­fo­lios that are held in cash stands at 25%. Even as the val­ue fell from its peak of 40%, the report stat­ed that it is still at a “his­tor­i­cal­ly ele­vat­ed level.”

Such a range was indica­tive that investors are nowhere near ful­ly allo­cat­ed, with “plen­ty of ammo remain­ing on the side­lines” to push the prices higher.

A chunk of liq­uid­i­ty has left the mar­ket as sta­ble­coin declined over 4% from $142 bil­lion to $136 bil­lion. But it appears that the remain­ing cap­i­tal still has a sig­nif­i­cant amount of dry powder.

More­over, the asset class being high­ly sen­si­tive to liq­uid­i­ty in the wider finan­cial mar­ket, any loos­en­ing finan­cial con­di­tions could act as a bull­ish nod to the cryp­to prices.

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