Today's Crypto Market Surge Explained (Dec. 2)

The crypto market experienced a notable upswing today, December 2, with Bitcoin and leading altcoins rising by more than 1% over the past 24 hours. This led to a market capitalization for all cryptocurrencies approaching $3 trillion.

Key Takeaways

Bitcoin and major altcoins have increased in value by over 1% in the last day.
Total market capitalization is close to $3 trillion.
Liquidations in the futures market dropped significantly, by 60% to $328 million.
Investors are optimistic about a potential 0.25% interest rate cut by the Federal Reserve.
There’s a risk of a "dead-cat bounce," which could lead to further price declines.

crypto market

Crypto Market Gains, Liquidations Decrease, and Open Interest Rises

Bitcoin Bitcoin btc2.8% and other cryptocurrencies are on the rise, with new data showing an improvement in futures market activity. According to CoinGlass, liquidations saw a sharp drop of 60% on Tuesday, resulting in $328 million, while the open interest in futures contracts increased slightly to $125 million.

This decline in liquidations is a favorable indicator, suggesting that fewer bullish trades are being forcibly closed by centralized or decentralized exchanges. Yet, investors remain cautious about liquidations, particularly in light of the October 10 incident, where over 1.6 million traders were wiped out. On that day, liquidations surpassed $20 billion, marking the worst single-day event in trading history.

Cryptocurrency Prices Rise Amid Increasing Odds of Fed Rate Cuts

The recent upward movement in the crypto market aligns with investors’ expectations that the Federal Reserve will lower interest rates by 0.25% in their upcoming meeting. A recent poll on Polymarket, boasting over $212 million in assets, indicates that the likelihood of a rate cut in December has surged to 90%, up from less than 50% in November.

Fed rate cuts odds are rising | Source: Polymarket

Additionally, the Fed has concluded its period of quantitative tightening, during which its balance sheet decreased by more than $2 trillion over the past two years. There are indications that the Fed could soon implement quantitative easing measures, a process that would inject funds into the economy to stimulate growth.

Recently, the Fed introduced $13.5 billion into the banking system through overnight repos, marking one of the most significant capital injections since the pandemic. This level of funding usually suggests that banks may be experiencing cash shortages.

QE Might Be Closer Than Expected - The Fed Just Gave the First Hint.
The Fed injected $13.5B into the banking system through overnight repos, the second-largest spike since COVID. This usually indicates something significant happening in the banking sector.

Assessing the Risk of a Dead-Cat Bounce or Bull Trap

The current rise in the crypto market can also be attributed to investors seizing the opportunity to buy during a dip, a common reaction after prices plunge, as witnessed on Monday. However, this rebound poses a risk of being categorized as a "dead-cat bounce" (DCB), alternatively referred to as a bull trap.

A dead-cat bounce occurs when a declining asset rebounds briefly before continuing its downward trajectory. It’s termed a bull trap because it lures traders into thinking that a bull market is forming, only for prices to start declining once more.

In the past few months, the crypto market has experienced several bull traps. For instance, it rebounded from $98,990 on November 3 to $107,276 on November 11, only to fall back into a downtrend shortly after.

This cautionary perspective invites traders and investors to remain vigilant and fully assess market conditions before making investment decisions.