The price of Bitcoin mounted a surprise rise after Federal Reserve Chairman Jerome Powell made statements regarding the possibility of cutting interest rates. The cryptocurrency rose around 5% to $117,000 after it hit an all-time high of slightly over $124,000 earlier in August. Much of the rise was fueled by leveraged derivatives trading, but it hit major resistance levels that could determine future prices.
Powell’s Remarks Caused the Rally
Powell’s comments raised the stakes in the labor market, generating increased expectations of a September rate reduction. Market participants were quick to react, as the price of Bitcoin increased from a position of around $111,600 to over $117,000 immediately after his speech. This quick reaction signaled a shift towards risk-on positions on the market.
Derivatives Flows and Open Interest
There was a large capital injection into derivatives markets subsequent to the price surge. Approximately $300 million flowed into Binance derivatives following Powell’s statement, as bullish sentiments continued to dominate. Open Interest in the latter exploded, with rising leveraged long positions, while funding rates remained positive.
However, the market continues to be vulnerable to volatility. A fall below the support line of $112,000 would have the potential to catalyze long liquidations, driving Bitcoin towards the vital $100,000 handle. Exaggerated bid-ask spreads and higher liquidation events indicate the likelihood of short-term price swings.
Spot ETF Flows and Retail Demand
Even with the rally, spot Bitcoin ETFs witnessed heavy outflows of $23.15 million alone on the day. This reinforced the doubts on the sustainability of the price increase given the muted retail demand as testified by falling metrics. The dependence on leverage trading instead of broad-based buying is an indication of caution.
What to Watch Next: Macro and Market Signals
Traders should watch U.S. jobless claims and inflation figures next week. These are significant economic factors that will determine the chances of a rate cut and will most likely have an impact on sentiment. Tracking through Open Interest, ETF flows, and funding rates will give other cues regarding the direction of Bitcoin.
Even as the cryptocurrency has shown bullish momentum, resistance levels and market circumstances mean that volatility will continue. Staying up to date with economic releases will be essential in order to ride out this volatile environment.
