The Bitcoin price rally got supercharged this week as investors cheered the new Bitcoin Futures ETF (BITO) fund. The BTC surged to an all-time high of $66,300, bringing its year-to-date gains to more than 120%. BTC has more than doubled from its lowest level in July.
3 reasons why BTC rallied
There are three main reasons why the Bitcoin price has rallied in the past few weeks. The most important one has been the positive reception of ProShares Bitcoin Fund. In the past two days, the fund has attracted inflows worth more than $1 billion. Analysts expect that this trend will continue as more institutional investors pile in.
Second, Bitcoin price has rallied because of hopes that more large money managers will rush to buy the coin. This is because these money managers have seen Bitcoin rise from the dead several times before. For example. Bitcoin tumbled in 2018 as the Fed tightened policy only for it to bounce back.
Similarly, in 2020 during the Covid-19 crash, Bitcoin declined to less than $4,000. It then staged a major comeback that saw it rise to almost $65,000 in May this year. After that, Bitcoin price crashed to less than $30,000 and is currently slightly below its all-time high. Therefore, there is a likelihood that many large investors will avoid staying in the sidelines.
Third, the BTC price has jumped because of the overall weaker US dollar. The dollar index has crashed sharply this week as the earnings season continues. Therefore, Bitcoin has declined because of the inverse correlation that happens between BTC and the USD.
Will this Bitcoin price rally hold?
However, there are some worries that a major pullback is about to happen. First, the Bitcoin fear and greed index has jumped to the extreme level of 84. This means that investors have gotten a bit greedy. As such, like it has happened before, there is a likelihood that some smart money will start exiting their trades as they take profits.
Third, the BTC price has formed a cup and handle pattern. It has already completed forming the cup pattern. Therefore, as the enthusiasm of the ETF starts to wane, there is a likelihood that the price will do a pullback.
To be clear, my overall view of Bitcoin is bullish and I expect it to test the $70,000 resistance soon. But we can’t rule out a pullback now.
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