Cryptocurrency Bitcoin Reaches New Peak Under Trump's Victory, Curiosity Lingers About Further Gains.
Cryptocurrency Bitcoin Reaches New Peak Under Trump's Victory, Curiosity Lingers About Further Gains.
Following a long period of inactivity since spring, Bitcoin (BTC, down 0.43%) has experienced a significant resurgence. This surge in popularity can be attributed to the victory of pro-crypto candidate Donald Trump in the presidential elections. In recent times, Bitcoin has reached unprecedented heights of $98,000 on November 21 (at the time of writing).
The sudden surge in Bitcoin's value has sparked questions about its potential for further growth or the imminence of a decline. Despite nearing the six-figure mark, data suggests that Bitcoin still harbors the potential to maintain its upward trajectory.
Leverage: Influencing Bitcoin's Market Dynamics
While leverage amplifies returns, it also introduces substantial risks to both individual investors and Bitcoin's overall market stability. A highly leveraged market is inherently fragile, making Bitcoin's price susceptible to volatile swings in either direction.
In volatile conditions, excessive leverage can trigger cascading liquidations, resulting in rapid price drops due to forced sell-offs. Conversely, in a bullish market, leverage can drive prices up during surges, resulting in artificial growth fueled by borrowed funds rather than organic demand.
Periods of excessive leverage make Bitcoin unstable. When many traders acquire heavily leveraged positions, particularly long ones, Bitcoin's market structure becomes unstable. Even a minor price decline can cause a wave of liquidations, amplifying losses across the market. This cyclical instability is a common characteristic of dramatic and unsustainable price fluctuations during over-leveraged conditions.
The Current Market Scenario
Fortunately, the current Bitcoin market presents a different picture. One effective measure to assess leverage and overall market health is funding rates - periodic fees exchanged between traders holding long and short positions. Positive rates indicate a higher demand for long positions, while negative rates suggest bearish sentiment with an increased number of short positions. Furthermore, the magnitude and amount of funding provide insights into the level of leverage present in the market.
Presently, Bitcoin's funding rates are highly positive, indicating a bullish sentiment. However, it's crucial to note that these rates are significantly lower than during previous all-time highs, signifying a healthier market structure. Data reveals that current rates are approximately half of what they were in March 2024, when Bitcoin reached $73,000, and approximately five times lower than during the peak of the previous bull cycle in November 2021.
This suggests that Bitcoin's current rally isn't driven by speculative leverage but rather by organic demand. The absence of excessive leverage contributes to a healthier and more stable market, reducing the risk of sudden price collapses caused by liquidations.
Furthermore, the lack of leverage in the market lays a strong foundation for Bitcoin's potential further growth. Given that spot buying is fuelling the current rally, Bitcoin faces less risk of sharp corrections and is well-positioned for continued growth.
A Long-term Perspective on Bitcoin
While trading at around $98,000 inherently carries more risk and offers slightly less upside compared to when it was trading below $60,000 a few months ago or $20,000 in 2022, it remains an attractive investment for those with a long-term perspective.
The main appeal lies in Bitcoin's design - it is designed to preserve value. Traditional currencies, subject to inflation and central bank policies, often lose purchasing power over time. In contrast, Bitcoin operates as an inflation-resistant "digital gold," featuring a capped supply of 21 million coins and a transparent, decentralized monetary policy.
Historical data demonstrates that Bitcoin's value has consistently increased over any four-year period, a trend related to its halving cycle, which periodically reduces the rate of new coin creation by approximately 4 years. Understanding this dynamic may shed light on the fact that Bitcoin may not be a profitable short-term investment, but it remains an excellent long-term investment, even at its current high value.
Eventually, Bitcoin trading below $100,000 may seem as remote as when it traded below $10,000. For now, Bitcoin's recent rally and healthier market structure suggest there is still room for growth.
In light of the current market scenario, investors considering Bitcoin as an investment opportunity find comfort in the lack of excessive leverage, which is indicated by the highly positive funding rates. This healthier market structure reduces the risk of sudden price collapses, setting a strong foundation for Bitcoin's potential further growth.
For individuals with a long-term perspective, the current high value of Bitcoin at around $98,000 remains an attractive investment due to its design as an inflation-resistant "digital gold." Despite the higher risk associated with its current value, Bitcoin's consistent increase in value over four-year periods, linked to its halving cycle, reinforces its potential as a long-term investment.