The Three Factors That Could Topple The Recent Bitcoin Rally

Bitcoin has held above $30,000 for nearly two full weeks, and the former all-time high of $20,000 seems like a distant memory. But there are three factors that are only growing in threat that could topple the epic bull run the cryptocurrency has been on.

Bitcoin Holds Above $30,000 For Almost Two Weeks, But Strength Could Be Waning

The leading cryptocurrency by market cap has yet to experience any sizable pullbacks beyond 25%. For an asset that’s notorious for 80% or more retracements, and as much as 37% during bull markets, the recent price action is uncharacteristic.

The perfect storm of institutional interest, low supply, and rapidly rising inflation fears, has resulted in the second most powerful Bitcoin bull run yet. And because there’s no telling where the top is, the cryptocurrency could be on track to shatter all expectations.

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But if there was going to be a tipping point, Bitcoin could be at it now as it consolidates above $30,000 – more than $10,000 higher than its previous 2017 peak. Here are the three factors that could spoil the upside momentum for the time being.

Three Factors Behind The Sudden Cryptocurrency Weakness

According to one crypto analyst, there are three primary factors that could send Bitcoin lower: low volume, high funding, and a strengthening DXY.

Funding references the rate paid for holding long positions in Bitcoin on derivatives exchanges. The higher funding goes, the more it costs to have those longs open – the system is designed to encourage longs to take profit during extremes.

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Low volume is never a good sign for a trend’s strength. Lack of volume often shows that interest is waning in the asset at current prices. A pullback more characteristic of Bitcoin could bring prices back to a level that reignites interest.

However, the cryptocurrency is speculative asset, and volume could increase with another push higher due to FOMO alone. There’s also a chance the low volume is due to the severe lack of coins on exchanges, and the fact that institutional buyers are likely buying OTC and not impacting what’s registered on exchanges for volume.

Comparing the DXY against Bitcoin. The dollar is strengthening | Source: BTCUSD on TradingView.com

Finally, the DXY dollar currency index – a basket of currencies trading against the dollar – shows that the dollar is strengthening after one of its worst year’s on record. Excessive fiat money printing to combat the pandemic has devalued the dollar.

But the extreme bearish sentiment on the dollar and over-exuberance in Bitcoin could be too tempting of a reality check for whales to ignore. A large move in the DXY would pull Bitcoin lower, as the two charts are inversely correlated.

Uncertainty around the coming United States Presidential inauguration and new tax policy could prompt a wave of profit taking in to cash. But because the President-elect has plans for much more stimulus money, any divergence in the current Bitcoin and dollar trends will be short-lived.

Featured image from Deposit Photos, Charts from TradingView.com