3 reasons Bitcoin price is quickly recovering from its ‘severe’ 23% correction
Bitcoin recovered quickly from $44,800 to over $50,000 in under 22 hours, and here are three key reasons why.
The price of Bitcoin (BTC) quickly recovered from around $44,800 to over $50,000 within merely 22 hours.
Behind the rapid recovery are three major factors, including low funding rates, Square’s $170 million Bitcoin purchase and the spot market stabilizing.
Bitcoin futures funding rates substantially drop
Across major futures exchanges — including Binance, Bybit and Bitfinex — the funding rate of Bitcoin has dropped to 0.01%.
The Bitcoin futures funding rate was consistently above 0.1% throughout the entirety of the rally from the $40,000s to $58,000.
When the futures funding rate is high, it means the market is overcrowded with buyers and the rally is likely overextended.
This creates a major risk of a long squeeze, which can cause the price of Bitcoin to drop quickly in a short period.
With the funding rate back to 0.01%, the risk of a long squeeze is significantly lower, and if a new uptrend ensues, the rally could be more sustainable.
Square buys $170 million worth of BTC
On Feb. 24, the United States payments giant Square bought $170 million worth of Bitcoin. This comes after purchasing $50 million worth of Bitcoin on Oct. 8, 2020. At the time, Square’s chief financial officer, Amrita Ahuja, said:
“We believe that bitcoin has the potential to be a more ubiquitous currency in the future. As it grows in adoption, we intend to learn and participate in a disciplined way. For a company that is building products based on a more inclusive future, this investment is a step on that journey.”
The additional purchase of Bitcoin by Square carries a significant meaning because it shows that the company is confident in BTC over the long term.
The price of Bitcoin is substantially higher than where it was in August 2020, which indicates that as its price rises, the confidence from institutions also increases.
The spot market is stabilizing
When Bitcoin was correcting, its price on spot exchanges, like Coinbase, was much lower than futures exchanges
On Feb. 23, for instance, Bitcoin was trading $600 lower on Coinbase at one point when the price was near $44,800.
When the price of Bitcoin initially recovered from $44,800 to $48,000, there were signs of a bearish retest.
John Cho, director of global expansion at GroundX, said:
“We were expecting it, but didn’t think it’d come this soon or this fast. A solid bounce from here would be ideal; but some potential retracement support regions I’m watching. My bias is towards the 40-41k region as it would fulfill a 30% correction from ATH.”
Bitcoin’s price has recovered above $50,000 since, and that could have reduced the likelihood of a bearish retest and the potential for more downside.
In the near term, if Bitcoin continues to remain above $50,600, which has turned into a support area, the probability of a rally toward the next resistance level at $56,000 rises.
Lastly, such corrections are quite normal for a Bitcoin bull market cycle, as Cointelegraph previously pointed out. In fact, they were commonplace during the 2017 bull market, which had nine major pullbacks between 20% and 40%. But despite these reoccurring “severe” corrections, the price of Bitcoin still increased twentyfold from its previous all-time high during that year.