Over the past week, the price of Bicoin had a big rally. The increase passed the expectations of most investors. Data for the past week shows that record trading volume occurred over most of the cryptocurrency exchanges. Bitcoin reached $9,400, but this does not mean there is now a bull market in place.
History demonstrates that any time Bitcoin's value goes up by more than $1,000 in one day, it is at risk of a big correction. A recent surge from $7,700 to more than $9,400 and a pattern of corrections suggest a pullback is on the short-term horizon. The relative strength index of 72 suggests that Bitcoin is overbought.
The surge to $9,400 passed the 200 day simple moving average, exponential moving average and Fibonacci retracement level. In most cases, Bitcoin does not go past all three of those resistance areas in a single day. If it does, it leaves the value vulnerable to a big drop.
Timothy Peterson, who is the CAIA Manager at Cane Island Alternative Advisors, explained the Bitcoin price gained more than $1,000 within one-day only 14 times since its creation. After those moves, it has fallen by anywhere from 5 to 38 percent. Usually, the drop is in the 10 to 20 percent range. It shifts the market's structure from majority short to long.
On BitMEX, Ether's funding rate for futures is 0.11 percent. If the cryptocurrency prices fall and lose their momentum, the funding rates put a lot of pressure on investors to adjust positions. The market can be irrational for a while. Those funding rates can be high, resulting in an overbought market for a few weeks until the correction takes place.
The general cryptocurrency sentiment is going up on hopes that reopening the American and European economies will increase economic activity. This is why both markets and digital assets are going up in value. Bitcoin could be benefiting from the global equities market, too. This could be the cause of the surge in the short time. A market downturn or bad COVID-19 news could result in loss of these recent gains.