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

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.