Bitcoin Rises Above $23,000, Is the Rally Sustainable? (Analysis)

Bitcoin Rises Above $23,000, Is the Rally Sustainable? (Analysis)

Bitcoin has moved higher as stock markets made more gains. The world's largest cryptocurrency by market capitalization climbed to over $23,000 on Tuesday. Since the beginning of the year, both Bitcoin and Ethereum have increased their price by 40%, withdrawing the entire post-FTX dump.

Needless to say, the ongoing rally has raised concerns about its sustainability given last year's carnage as well as the numerous fake rallies that followed. However, the latest Bankless report suggests that “there is reason to believe this rally could have legs.”

“Bears from Heaven”

One of the main reasons Bankless points out is that there is little to suggest that the market is overleveraged. In 2022, a major deleveraging event occurred as centralized infrastructures collapsed, flushing out a gigantic portion of leveraged capital.

The open interest on perpetual futures also recorded a significant drawdown.

DeFi whales, for example, were “not particularly overleveraged.” Therefore, to trigger another cascading liquidation event similar to that of FTX and COVID, an “exogenous shock” would be required, as there are only $164 million in liquidable ETH positions above $1,000 across lending protocols such as Maker, Aave, Compound, Euler, and other liquidity.

"Although struggling players like DCG remain, there is little to suggest that the market is over-leveraged. Given the huge amount of short liquidations since the start of the year, it appears that it is bears, not bulls, who are above their skies."

Keep measuring

The positioning of investors and traders also suggests that the rally could be sustainable. A closer look revealed that investors hold a large portion of their assets in cash. Meanwhile, data from Nansen shows that the percentage of large whale portfolios held in cash is at 25%. Even as the value fell from its peak of 40%, it is still at “historically high levels,” according to the report.

Such a range suggests that investors are far from fully allocated and “there is still plenty of ammunition left on the sidelines” to push prices higher.

Some liquidity has left the market as the stablecoin fell over 4% from $142 billion to $136 billion. But it appears that the remaining capital still contains a significant amount of dry powder.

Additionally, since the asset class is highly sensitive to liquidity in the broader financial market, any easing in financial conditions could act as a bullish sign for crypto prices.

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