Bitcoin starting to form a bottom? Why $40K is the next target?

Bitcoin has seen more green in the past day as it climbs its way back above $39,000. At the time of writing, BTC’s price was rejected at those levels, but the bulls are showing some conviction and could push further towards previous highs.

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The first cryptocurrency by market cap, at the time of writing, is trading at a price of $38,654 with a gain of 4.2% in 24 hours.

BTC with some gains in the 4 hour chart. Source: BTCUSD trading summary

In the short term, bulls appear to have the upper hand as market conditions favor a short squeeze. As NewsBTC reported yesterday, the macroeconomic factors pushing Bitcoin down will ease in the coming weeks, potentially contributing to a rallying rally through mid-March.

In a recent report, Glassnode identifies a shift in market participant preference from a majority of long positions in the fourth quarter of 2021 to most short positions in January 2022. Despite the recent downward trend, Open Interest (OI) in the Futures sectors is increased and is at a peak of almost two years.

Glassnode claims that the Futures sector has seen a decline in trading volume since 2021, reaching nearly $60 billion a day when Bitcoin hit the low $30,000. Meanwhile, OI is trading at 1.3% of BTC’s total market cap, which could indicate that a deleveraging event is in the works.

In other words, when Bitcoin reaches an OI of more than 1% of its total market cap, the price of BTC is quickly propelled in both directions. As seen below, BTC could experience a long or short squeeze, but the latter seems more likely due to the shift in traders’ bias. glass node added:

With high negativity, increased leverage and a general bias towards shorts, a reasonable argument could be made for a possible counter-trend short squeeze in the near term.

Source: Glassnode Insights

Bitcoin heading for $30K? Incoming volatility

In high time frames, Bitcoin’s return from previous highs around $40,000 could be short-lived as the market expects the US Federal Reserve (FED) to raise its interest rates by March 17. Around that time, the crypto market could see more downside, back to the low $30,000 or below these levels.

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Data from Material Indicators (MI) records a small change in option flows with high selling puts for BTC at $25,000 by the end of February. This could indicate that BTC would find a solid bottom above these levels, in the event of a further decline, as market participants get their option positions below them. MI said:

Last time (July 2021) we tagged all bearish order flow levels. It’s only 1 observation but that would put us at 30k daily close before turning back if it happened again. Not sure if we’ll see a rerun.

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