A crypto market rally is underway today, Oct. 31, with top tokens like Zcash (ZEC), Bittensor (TAO), Aster (ASTER), Dash, and Virtuals Protocol leading the charge.
The total market capitalization of all tokens jumped by over 2.2% in the last 24 hours. This article explores the main reason the cryptocurrency market is rallying today and why it could be a dead-cat bounce (DCB), also known as a bull trap.
Why the Crypto Market Rally is Happening
The cryptocurrency market rally is happening as investors buy into the recent dip. Most tokens, including popular names like Bitcoin, Solana, and Ethereum, have entered a correction or a bear market.
It is common for traders to buy the dip when cryptocurrencies and other assets, such as stocks, plunge. This happens because these traders assume the tokens are cheap and will eventually bounce back.
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Indeed, a closer look at some of today’s best-performing tokens shows they were among the top laggards during the crypto market crash.
The cryptocurrency market is also rising alongside the equity market, which has added over $17 million in value this year. Top indices like the S&P 500 and the Nasdaq 100 continued to rise, driven by the ongoing growth of the AI industry. In a note, a UBS analyst said:
“We maintain our conviction that AI-related stocks should drive further equity performance and believe that underallocated investors should add exposure to the theme through a diversified approach.”
Beware of a Dead Cat Bounce in the Cryptocurrency Market
Still, it is unclear whether the ongoing crypto market rally will continue in the foreseeable future. That’s because recent rallies have turned out to be DCBs.
A dead-cat bounce is a situation where an asset in a free fall bounces back briefly and then resumes the uptrend. It is based on the view that a falling cat will bounce back a bit before resuming the downtrend.
One main reason this may be a bull trap is that Bitcoin and most altcoins have formed bearish patterns that could lead to further downside.
For example, the Bitcoin price has formed a death cross pattern, while Pepe has formed a multi-year head-and-shoulders pattern. XRP has also formed a death cross, meaning that the bear market may persist.
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