Bitcoin’s Rebound Boosted by Potential Short Squeeze Amid Monday Slide

Jakub Porzycki | Nurphoto | Getty Images

An Upward Reversal in Bitcoin: FTX Liquidation Fears Subside

The price of bitcoin bounced on Tuesday, erasing the losses from the previous day that were driven by fears surrounding FTX liquidations.

Bitcoin is currently up by 4.5% at $26,185.72, according to Coin Metrics. On Monday, it dropped below the crucial support level of $25,000 for the first time since March. The rebound may be attributed, at least in part, to investors who had bet against the cryptocurrency rushing to cover their short positions, resulting in a short squeeze.

Ahead of a hearing on Wednesday that could potentially grant permission for the liquidators to sell the assets of FTX and its sister company, Alameda Research, investors have been selling off their cryptocurrencies. Some of the biggest holdings of the company are tokens native to the Solana and Polygon networks. On Monday, these tokens decreased by 3% and 5%, respectively. However, on Tuesday, they have continued to rise and are up by around 2.5% each.

Nevertheless, there is still a possibility of disappointment. Katie Stockton, from Fairlead Strategies, pointed out that weakened momentum in the intermediate term could make it challenging for bitcoin to experience a sustainable recovery. With the bounce on Tuesday, the cryptocurrency’s next level to test on the upside is $27,600, which represents its 50-day moving average.

Aside from the FTX liquidation concerns, the crypto market has been struggling to find significant catalysts as investors await clearer regulations. Attention has also shifted back to inflation and economic indicators, following a series of better-than-expected data points last week, renewing concerns that the Federal Reserve may raise interest rates again before the end of the year.

This week, investors will be closely watching the release of the August consumer price index on Wednesday and the producer price index on Thursday.

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