‘The Definition of a Leverage-Driven Pump’ — 5 Things to Know in Bitcoin This Week

Bitcoin (BTC) has started the new week attempting to hit a new October high, but concerns about market sustainability are everywhere.

• BTC price action challenged $64,000 after the weekly close, but high leverage levels are making observers skeptical.
• A ton of macro data printing is set to fuel a potentially volatile week.
• On-chain data shows that long-term Bitcoin holders are reducing their risk this month.
• Meanwhile, short-term holders are under the microscope as both leverage and open interest rise sharply.
• Is Uptober canceled? Some perspectives argue that BTC/USD will return in time for the monthly close.

BTC price rebound due to leverage

Bitcoin gained momentum to close the week at a record high of $63,975 on Bitstamp, according to data from Cointelegraph Markets Pro and TradingView.

Although encouraging on paper, the resulting BTC price action has raised more doubts than support among traders.

The reason, they agreed, was leverage. This is because it was easy for weapon price increases to disappear in an instant as market bets increased.

Analyst JA Maartunn, a contributor to on-chain analytics platform CryptoQuant, described the recent performance as “the definition of a leverage-driven pump.”

Popular trader CrypNuevo, while analyzing the market structure, marked $63,800 as a potential near-term reversal point.

“I see this as a possibility because there could be several possible catalysts, such as bad economic data or news of war escalation,” he explained in a thread dedicated to X on October 6.

CrypNuevo warns that next week will be difficult to trade due to a number of potential volatility curveballs.

Nonetheless, Keith Alan, co-founder of trading resource Material Indicators, already considered the recovery of the 21-week simple moving average (SMA) to $62,800 a good sign.

“A successful campaign puts BTC in a good position to track the 200-day MA and the 2021 Mid-Cycle Top,” he told X followers.

“A failed campaign means more time in scope and a greater likelihood of retesting support.”

The 200-day SMA is currently $63,566.

CPI week, market abandons bets on 0.5% rate cut

A big week of U.S. macroeconomic data includes September prints of the Consumer Price Index (CPI) and Producer Price Index (PPI) and jobless claims.

Markets are expected to be particularly interested in CPI after last week’s surge in employment, with a month left until the Federal Reserve’s next decision on interest rate changes, according to the analysis.

The Fed is currently expected to cut interest rates by 0.25% on November 7, according to data from CME Group’s FedWatch tool. This is a sharp contrast to market bets from just a week ago.

A bigger cut of 0.5% was clearly possible before the hiring announcement, but this result is now a sharp departure from market expectations.

“The November 50 rate cut was almost fully priced in last week, but that could change,” trading resource The Kobeissi Letter wrote in part of a recent X report.

Analyzing the U.S. financial situation, Kobeissi went on to say that, by one measure, two years of interest rate increases have already eased.

“Financial conditions recorded their biggest year-on-year decline in three years and returned to levels prior to the interest rate hike. “Since October 2023, the Financial Conditions Index has eased at the fastest pace since March 2020, when the Federal Reserve cut interest rates to nearly zero.”

“Effectively, restrictive Fed policy and interest rate hikes beyond March 2022 have been cancelled. This comes as market prices reflect a further 75 basis point interest rate cut in 2024 alone.”

As a result, the analysis suggests that the Fed may be “moving too quickly” by easing policy.

The minutes of the September meeting, which resulted in the first 50 basis point interest rate cut, are scheduled to be released on October 9.

Long-term holders are “likely” to protect their profits.

Bitcoin’s “diamond hand” shows signs of tension this month, judging by the net position change in the realization cap.

This adds up the value of all coins owned by so-called “long-term holders”, i.e. entities that hold a certain amount of BTC for at least 155 days. Last week, research from on-chain analytics platform CryptoQuant showed that the realized cap had decreased by $6 billion.

“Recently, the LTH realization limit (blue) plummeted by $6 billion (from $19 billion to $12 billion). This suggests that long-term holders are likely to take profits or close out their long positions,” contributor Amr Taha noted in a report. CryptoQuant’s Quicktake blog post.

At the same time, the equivalent indicator, which covers coins owned by Bitcoin speculators, also known as short-term holders (STHs), also increased by the same amount. This suggests these companies are “more likely to take on more risk or increase their buying positions,” Taha argued.

Meanwhile, active Bitcoin whales currently hold more BTC than ever before.

CryptoQuant data covering the last active whale wallets in the last 24 hours calculates that their total balance now stands at nearly 267,000 BTC, up 75,000 BTC from early September.

Focus on speculator profits

STH is now in focus for another reason. STH’s profit margins are becoming an early warning sign about the level of cryptocurrency market leverage.

In another Quicktake post on October 5, contributor Percival noted that STH trading profitability rebounds when leverage encounters “impulse zones,” periods when open interest (OI) increases sharply across exchanges. This is measured by the STH SOPR (Profit on Spent Output Percentage) indicator.

“An ‘impulse zone’ is needed so that investors can exploit maximum profits and minimize losses with long positions. Open interest fluctuates between -10% and -8%. On September 24th there was a -8% drop,” Percival explained.

“Compared to past movements, an ‘impulse zone’ occurs when STH SOPR begins a recovery process and we see the average gains of these groups increasing.”

Percival said the impact is already on the radar of market watchers, adding that market corrections “tend to kick in” when the level of OI rate change exceeds one standard deviation.

Bitcoin Could Still Produce an Uptober Comeback

At least the October monthly candle has turned green again, with BTC price soaring towards $64,000 overnight.

relevant: Bitcoin analysis confirms BTC price rise on Coinbase Premium Golden Cross.

While still treading water, BTC/USD is generating some optimism from the trading and analysis community.

Among them is popular trader Jelle, who is looking to make market moves as the month closes and is giving us a classic “Uptober” in the process.

He claimed in some of his recent X posts that “Bitcoin is still following the same playbook as last year.”

“Months of work will end in October. The lowest price of the month is here and now the real fun begins.”

Jelle was referring to the seven-month consolidation period that began after Bitcoin hit an all-time high in March. As Cointelegraph reported, the price has been attempting to break the cycle of lower highs and lower lows since then.

This article does not contain investment advice or recommendations. All investment and trading activities involve risk and readers should conduct their own research when making any decisions.