Bitcoin's recent jump from the $60,000s to about $80,000 came mainly from a short squeeze. Longs and shorts in the futures market got mismatched, and that forced prices up. Some money also flowed into Bitcoin exchange-traded products, which is a positive sign. The best kind of crypto rally shows buying come through in the spot market first, then get confirmed on the futures side.
September Seasonality
September is usually the weakest month of the year for Bitcoin. Looking back to 2011, Bitcoin falls about 4% on average each September. This year may be different. The recent reset in the leveraged futures market may have cleared out enough of the excess that prices are now less likely to see a "long flush" - a fast drop when too many bullish bets get wiped out - in the short term. Bitcoin has also been in a crypto bear market and was down as much as 50% from its high at several points this year. With traders already positioned for a weak September, the more likely outcome this time is a quiet, boring September.
The $80,000 Level and a Possible Year-End Rally
The biggest driver going forward is investor sentiment - where investors are making money and where they are not. Several different measures of cost basis (the average price at which holders bought) all point to around $80,000. That level matters because every rally off the lows has hit resistance right there. Something is needed to push through it, whether from a regulatory move or continued net inflows into ET products. If Bitcoin can hold above $80,000 in a lasting way, the average Bitcoin investor is back in profit. That could open the door to a year-end rally. October, November, and December have historically been strong months for cryptocurrencies, and if that pattern holds there could be more upside beyond $80,000.
Bonds, Yields, and the Gold Link
Bitcoin's correlation to other asset classes and macro factors changes over time. Over the long run it is a low-correlation asset to all of them. In the short term you would normally expect rising yields and a stronger dollar to hurt Bitcoin. This year, Bitcoin's sensitivity to these macro factors has dropped sharply. In recent weeks its correlation to gold has actually risen as the "debasement trade" narrative - the idea that currencies lose value as governments spend and borrow - came back into the market.
The rise in bond yields reflects the market's worry about the budget deficit. That worry goes back to why Bitcoin was created. It launched during the depths of the financial crisis as an alternative money system with its own digital currency. In that kind of environment, rising interest rates can actually support Bitcoin prices, even though higher rates would normally be a negative.
Bitcoin's behavior keeps shifting. At times it moves closely with tech stocks, at times with the yen, at times with gold. Gold and Bitcoin moved in opposite directions entering the year, and now the story is different.
DeFi Sentiment vs. Traditional Finance
The cure for bearishness in any bear market is higher prices. As prices rise, sentiment in the DeFi and crypto-native world is starting to pick up. It was very bearish earlier in the year. The true crypto and DeFi side has been in a real recession: crypto companies have cut staff and done layoffs, some exchanges have closed, and Strategy has come under pressure. All of these are signs of crypto market weakness. The deeper you go into building applications, the more that pain is felt.
As prices rise across the whole space, activity is picking up, and more financial institutions around the world are looking to add DeFi and blockchain to their businesses. That is lifting crypto-native sentiment closer to the more neutral view held at the meeting point of traditional finance and crypto - not yet equal, but closing the gap.
Over the last half hour, both tech stocks and Bitcoin showed signs of stabilizing.
