The price of Bitcoin (BTC) has been ranging between $9,800 and $10,500 for nearly a week after a short fall from almost $12,100 seen on Sept. 1. As BTC struggles to show any distinctive price movement, traders are generally cautious.
Over the medium to long term, traders expect Bitcoin to recover and perceive the ongoing consolidation phase as a healthy pullback. From July 16 to Aug. 17, Bitcoin rose from $9,005 to $12,486 on Coinbase, with a pullback arguably necessary to neutralize the futures market.
A large portion of Bitcoin’s daily volume comes from the futures market. Cryptocurrency futures exchanges use a mechanism called “funding” to achieve a balance in the Bitcoin market. The mechanism forces long contract holders to compensate short-sellers for a portion of their positions if the market is majority long, and vice versa.
Typically, when the rally of Bitcoin becomes overextended, it causes the futures market to get overcrowded and funding rates to soar. In the event of a pullback, it allows funding rates to stabilize, reducing the probability of a long or short squeeze.
Explaining short-term BTC bearishness
Speaking to Cointelegraph, Dennis Vinokourov, the head of research at crypto exchange and institutional brokerage provider BeQuant, and Guy Hirsch, managing director of eToro trading and brokerage platform, revealed that Bitcoin’s medium-term outlook is positive due to various fundamental and technical factors.
Following the rejection of Bitcoin at $12,000, analysts attributed many factors to the decline of BTC. As Vinokourov pointed out: “The aggressive unwind of crowded positioning related to DeFi assets” could have contributed to the decline. However, other factors like whales taking profit, miners selling off their stashes, and a major South Korean exchange Bithumb reportedly being raided by police all might have applied selling pressure on Bitcoin. Hirsch emphasized that in periods of low volatility, price drops can be intensified when…