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Analysts: Panic buying fueled Bitcoin’s surge to $42K – How far will the market fall?

Bitcoin

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TL;DR

  • Bitcoin (BTC) touched a 19-month high above $42,000 Monday due to “panic buying” from decreasing interest rates, bitcoin ETF decisions, and digital asset fund flows.
  • Matrixport observed on Monday that Bitcoin perpetual futures premium was higher than the current price, suggesting traders rushed into BTC out of FOMO.
  • The latest fund transactions report from asset manager CoinShares indicates that investors continue to pour money into crypto funds.
  • While the outlook for Bitcoin appears to be positive, certain potential short-term obstacles exist – Could BTC slip into a bear market?

Christmas came in early for Bitcoin investors. The recent surge of Bitcoin to an astonishing $42,000 has left analysts and enthusiasts alike scrambling to decipher the driving forces behind this sudden ascent. As panic buying gripped the market, fueled by a complex interplay of factors such as global economic uncertainties, regulatory developments, and institutional interest, the crypto ecosystem finds itself at a crucial crossroads. 

Bitcoin’s recent heights pose the crucial question on every market participant’s mind: Will this market trajectory last? If not, how far will the market fall, and what factors will shape its trajectory in the days to come? 

Here’s how FOMO pushed BTC to $42K

Bitcoin hit a new 19-month high above $42,000 on Monday, fuelled by some “panic buying” as reduced interest rate forecasts, imminent spot bitcoin ETF decisions, and flows into digital asset funds supported growing crypto prices.

The largest crypto by market capitalization rose swiftly over the weekend after breaking through strong resistance at $38,000, a level that had restricted prices for the whole of November.

BTC was trading around $42,000 late Monday afternoon, up 5.8% in the previous 24 hours. And now? BTC is currently trading at $41,722.09, with a 24-hour trading volume of $36,139,438,768.88. This is a 0.77% increase in the last 24 hours and a 12.99% increase in the last 7 days. 

The global crypto market cap is now $1.61 trillion, a 0.53% increase over the last 24 hours and an 81.62% increase over a year ago. BTC has a market cap of $816 billion as of today, reflecting a 50.62% market dominance. Meanwhile, the market cap of stablecoins is $130 billion, accounting for 8.06% of the total crypto market value.

Bitcoin’s bull rally is still dominated by expectations for a spot BTC ETF in the United States, with market experts expecting approval by the Securities and Exchange Commission (SEC) in early January.

In a Monday report, crypto investment services firm Matrixport observed the elevated levels of Bitcoin perpetual futures premium against spot pricing, implying that traders rushed into BTC due to FOMO (fear of missing out) on the rally.

Traders do not have enough upside leverage, this is the conclusion from the elevated premium that perpetual futures are trading at […] This shows panic buying from traders who are closing out shorts or increasing leveraged longs.

Matrixport

For much of the year, perpetual futures traded at a 5-10% premium to the spot price, which widened to 10-15% and occasionally reached 20-30%, according to the analysis.

Bitcoin’s price into 2024

According to the most recent fund flow data from asset management CoinShares, investors are still pouring money into crypto funds. Another $172 million in net inflows were recorded last week, extending the inflow winning streak to 10 weeks and $1.7 billion.

According to the report, Canada, Germany, and the United States led with significant inflows, while Hong Kong experienced minor outflows; Asia as a whole saw year-to-date net outflows.

Furthermore, Bitcoin received $133 million in inflows, Ethereum received $31 million, and blockchain equities received inflows for the seventh consecutive week.

While the outlook for Bitcoin appears to be positive, economists warn of some potential short-term obstacles.

The reason for concern is that even though selling pressure was being exhausted in the futures markets, there was a lack of follow-through from spot markets.

The reason could be multifold, including short-term investors still anticipating lower prices being caught off-guard and now waiting for confirmation before entering long positions or simply interest from smaller market participants being driven towards higher returns on altcoins.

Bitfinex’s Monday report

Now, the BTC bull rally hangs in the balance. Analysts predict that the rally will remain effectual if BTC ETFs are approved in early January. If not, the market is looking at shacky grounds that could lead to heavy losses – worse than those brought about by the collapse of Terra Luna and the mess SBF left behind.

Disclaimer. The information provided is not trading advice. Cryptopolitan.com holds no liability for any investments made based on the information provided on this page. We strongly recommend independent research and/or consultation with a qualified professional before making any investment decision.

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Florence Muchai

Florence is a crypto enthusiast and writer who loves to travel. As a digital nomad, she explores the transformative power of blockchain technology. Her writing reflects the limitless possibilities for humanity to connect and grow.

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