Key Points
- Bitcoin (BTC) and Ethereum (ETH) rallies have led to record-high trading activity, indicating a full-blown bull market.
- Technical indicators suggest potential market volatility, urging investors to exercise caution.
The recent rallies of Bitcoin (BTC) and Ethereum (ETH) have driven trading activity to record levels, reminiscent of the 2021 rally. This surge suggests that the bull market is in full effect.
However, the similarity to 2021 also suggests potential market overheating, which could lead to price volatility for both BTC and ETH.
Impressive Price Appreciation
In the past 30 days, Bitcoin has seen a 50% rise, approaching its all-time high (ATH). Similarly, Ethereum has witnessed a 50% increase over the same period. This rapid price growth, along with technical indicators such as open interest and Bitcoin funding rates, hint at potential market volatility.
Last week, the funding rates for Bitcoin perpetual futures listed on Binance exceeded 100% for the first time in a year, indicating a bullish trend. Concurrently, rising open interest indicates a surge in open BTC and ETH derivatives positions on exchanges.
Historical Parallels and Future Predictions
Historically, high funding rates, extreme price movements, and rising open interest serve as a cautionary signal for traders. Open interest in Bitcoin reached $31 billion on March 4, surpassing the previous record of $24.3 billion set on April 14, 2021. Similarly, open interest in ETH futures was around $12 billion on March 4, nearing the $13 billion peak seen on Nov. 9, 2021.
Despite these indicators, the fundamentals around BTC and ETH remain strong, with new all-time highs expected this cycle. However, the market’s frantic pace suggests a rise in fear of missing out (FOMO), which could lead to short-term instability.
In such markets, it’s crucial for traders to have a solid strategy and not let emotions drive their decisions. Options traders should monitor charts and data, while buy-and-hold investors need to remember the volatility of the crypto asset class. The most successful players in this bull run will be those who maintain their composure amid market turbulence.
Lucas Kiely, the chief investment officer for Yield App, previously held positions at Diginex Asset Management and Credit Suisse in Hong Kong, where he managed QIS and structured derivatives trading. He also served as the head of exotic derivatives at UBS in Australia.
