Analysis: Why Bitcoin price may fluctuate sharply in early December

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On December 1, after the weekly and monthly markets close, the price of Bitcoin (BTC) will face two key events. The upcoming weekly line is particularly noteworthy, as this may be the first red weekly line since late September.

The monthly line will be significant because if the Bitcoin price stays above $13,791, it will set the highest closing price in Bitcoin history.

There are three key factors that may cause Bitcoin’s volatility to soar at the weekly and monthly closes. These factors are the general uncertainty surrounding the price of BTC, record-setting futures trading activity and open positions, and the weekly chart of excessive increases.

At the same time, despite the Bitcoin price rebounding from around $16,500 on November 28, traders have turned cautious and expect a correction in the near future.

There are two key trends that may drive Bitcoin’s recovery. First, Guggenheim Investments, a global asset management company with more than US$233 billion in assets under management, obtained the right to invest US$500 million in the Grayscale Bitcoin Trust Fund.

In the United States, Bitcoin exchange-traded funds (ETFs) do not yet exist. For most institutional investors, Grayscale Bitcoin Trust is the first entry point. Deribit reported that the news triggered a large number of buying activities in the options market. The company said:

“The report on the Guggenheim Macro Opps seeking to allocate US$500 million was announced last weekend, and Bitcoin bounced back from lows by US$2,000. The quiet weekend options market was ignited.”

Second, high-net-worth investors and whales may buy on dips under Monday’s expectations. As the quantitative trader pointed out, in recent weeks, most buyer demand has come from the United States.

Some speculate that demand comes from the time-weighted average price (TWAP) algorithm commonly used by institutions and funds. Since the TWAP algorithm will be activated again on Monday, it may increase buyer demand for Bitcoin.

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Traders are usually not sure about the price direction of Bitcoin

Currently, there is a high degree of uncertainty in the cryptocurrency market, and traders are divided on the next move of prices.

Some believe that Bitcoin may bottom out over the weekend due to market trends. For example, Avi Felman, Head of Trading at BlockTower, said that on Coinbase, Bitcoin’s recent pullback caused Bitcoin to move to stronger holders.

Excessive selling may occur during a bull market, especially because traders often look for reasons for selling. As a result, buyers with excessive leverage will be put at high points, leading to a large number of liquidations. But when traders expect more downside and market sentiment reaches a low point, Bitcoin tends to recover. Felman explained:

“After the massive sell-off on Coinbase, Bitcoin quickly rebounded. In my opinion, this shows that retail is slowly picking up. The transition from weak to strong has been very obvious in the past 48 hours. Pullbacks in the bull market always make You have plenty of reasons to sell.”

In addition, various technical indicators show that Bitcoin is neither overbought nor oversold in a short time frame.

For example, on the daily chart, Bitcoin’s Relative Strength Index (RSI) is around 55. If the asset falls below 35, the asset is considered oversold. Therefore, Bitcoin is in an awkward position because, like the weekly chart, the high time frame chart is still overbought.

This makes traders predict that the support range of $13,000 to $14,000 may soon be corrected. This high degree of uncertainty in the market may lead to increased volatility as new weekly and monthly lines are about to open.

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The open positions on the futures exchange may increase again, increasing the possibility of large price fluctuations.

Whales become more active in Bitcoin futures

Throughout the Bitcoin rally in recent weeks, trading activity on major Bitcoin futures exchanges has been increasing. Despite the recent decline, the open positions of top futures trading platforms remain above US$1 billion. When the open interest is high, the possibility of short or long squeeze increases, which may lead to a significant increase in volatility.

Especially on the Chicago Mercantile Exchange (CME), Bitcoin futures trading activities have increased significantly. Interestingly, “Arcane Research” reported that by 2020, the number of large traders with minimum holdings of more than 25 BTC has more than doubled.

The Arcane researchers explained that this trend indicates an increase in institutional demand for Bitcoin. CME Group’s trading activities continue to increase, and qualified investors and institutional investors may experience increased short-term volatility due to excessive trading volume. The researchers said:

“Large traders hold at least 5 futures contracts, equal to at least 25 BTC (5 BTC per contract). The average level in 2019 was 45 large traders, and there was no significant increase throughout the year. However, this number is It doubled in 2020. Two weeks ago we saw a new record of 102 large traders. This may be one of the best signs that institutions have increased demand for Bitcoin exposure. We already know that people like Paul Tudor Jones Investors are part of a growing group of Chicago Mercantile Exchange, which is currently the second largest futures market for Bitcoin.”

Although the demand for Bitcoin by institutional investors has been on the rise, the futures market is still the main factor causing volatility.

Cointelegraph reported earlier this week that when Bitcoin fell from $19,400 to $16,200, Binance Futures alone liquidated futures contracts worth more than $400 million due to the impact of massive liquidation.

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The new weekly line is a big variable

Bitcoin will have a new weekly line in the next 48 hours, but in the weekly time frame, this variable still shows overbought.

The RSI on the weekly chart is 88. When the RSI of an asset exceeds 75, it is considered overbought. Weekly lines are also significantly higher than short-term moving averages (MAs), namely 5-day, 10-day and 20-day moving averages.

Traders have been looking forward to the correction because the weekly chart has gone up too much. If Bitcoin consolidates above the short-term moving average, it will make the rebound more sustainable because it will give the derivatives market and spot buyers time to catch up.

In addition, the monthly chart of Bitcoin is even more so (excessively rising) than the weekly chart. The 5-day MAs, 10-day MAs and 20-day MAs are respectively 13129 USD, 10778 USD and 9685 USD, which are significantly lower than the current market price.

However, in the foreseeable future, it is still uncertain whether Bitcoin technology can be corrected by technical factors alone. If institutional buyers like Guggenheim continue to make headlines by entering the Bitcoin market, it may attract more buyers and retail investors in the short term.

First of all, historically, the price of Bitcoin has been very unstable in December. Although the volatility rate in December 2019 was relatively low, there were dramatic price volatility at the end of 2017 and 2018, including record highs of nearly $20,000 and a bear market bottom.

If a similar situation occurs, the price of Bitcoin will fluctuate sharply before the end of the year.