Written by: Yves, Head of Trading at Wirex
The cryptocurrency markets finally bounced back this week. The Bitcoin price reached $40,927 two days ago: a level that was last seen on June 15th. Last week’s B-word live session with Cathy Wood, Jack Dorsey and Elon Musk strengthened the support below the $30,000 levels and created the right market conditions for a ‘short squeeze’. Indeed, the Bitcoin derivatives market has been showing signs of excessive leverage on the downside: short position holders have been paying/funding their long position counterparts more often. The frequency of negative funding days has been particularly high since the end of April. But more recently, the negative funding has persisted for weeks on some exchanges (e.g. Bitmex - source blockcrypto). A negative funding rate usually translates into a bearish market scenario that is characterised by these ‘short squeeze’ phenomena: violent rallies that force short position holders into liquidation.
Concentration of negative BTC futures funding rates around the 25th of July until early Monday morning (26th) - source bybt
Bitcoin Futures contracts liquidation (in $). In red are the short positions liquidated every day, and in green the long positions liquidated every day - source bybt
Short future contracts worth $942m have been liquidated on Sunday and overnight, sending the Bitcoin price 4.68% higher on Sunday and 5.24% higher the next day. The movement forced the BTC futures funding rate back into positive territory.
The price rally resumed two days later, fuelled by speculations around Amazon’s stronger involvement in the sector. The speculations started with a crypto job posted on the company’s website, and an article in City AM untitled: ‘Amazon ‘definitely’ lining up Bitcoin payments and token, confirms insider’. It stated that ‘Amazon is looking to accept payments ‘by the end of the year’’. It also mentioned that it would accept more cryptocurrencies for payment, including its own. The City AM article is extremely bullish at a time when markets are desperately waiting for another large company such as Amazon or Apple (via Apple Pay) to step forward with an ambitious plan. Amazon’s alleged plan sent the price of the first cryptocurrency 13% higher within three hours.
The company denied the article’s story 20 hours later, although the statement only sounded like a partial denial:
‘Notwithstanding our interest in the space, the speculation that has ensued around our specific plans for cryptocurrencies is not true, (…) we remain focused on exploring what this could look like for customers shopping on Amazon.’