Bitcoin’s recent price rally has sparked speculation about the beginning of a new bull market. The surge in price, which saw a 16.1% increase between October 22 and October 24, resulted in the liquidation of $230 million worth of bearish futures contracts. Interestingly, the open interest in Bitcoin futures actually increased during this period, indicating that short traders were not employing excessive leverage.
Some market observers believe that the rally was driven by a “gamma squeeze” in Bitcoin derivatives. According to this theory, market makers had their stop losses “chased,” leading to a cascade of forced closures. This theory is supported by data showing the increase in BTC futures open interest during the rally.
There is also speculation that Changpeng Zhao (CZ), the CEO of Binance, played a role in Bitcoin’s price action. It is suggested that CZ used Binance Coin (BNB) as collateral for margin on the Venus Protocol DeFi application, and then sold Bitcoin to support the price of BNB. After successfully stabilizing BNB, CZ would have bought back Bitcoin using BNB to rebalance his position. While these theories are plausible, it is impossible to confirm or dismiss them definitively.
Despite the speculation surrounding the causes of the rally, Bitcoin derivatives metrics suggest a healthy bull run and room for further gains. The Bitcoin futures premium reached its highest level in over a year, indicating increased demand for leveraged long positions. Additionally, the Bitcoin options market shows a balanced demand between call and put options, suggesting a more optimistic sentiment among traders.
While the approval of a Bitcoin exchange-traded fund (ETF) remains uncertain, there is enough evidence to support the influx of funds into Bitcoin and justify a rally beyond the $35,000 mark.
Please note that the views expressed in this article are not intended as legal or investment advice and are solely the author’s opinion.
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