The crypto market is going up, with Bitcoin and top altcoins remaining in the green in the past few weeks. Bitcoin jumped to $75,000 while top tokens like RaveDAO, Memecore, Siren, and Celestia have jumped by double digits. This article looks at some of the reasons behind the crypto rally.
Crypto rally happening as traders look past the Iran war
One major reason behind the stock and crypto market rally is that investors are looking past the ongoing Iran war. While the crisis is still continuing, investors believe that it will ultimately end. This hope explains why crude oil and natural gas prices have pulled back recently.
An end to the war will be bullish for BTC and other altcoins because it will eliminate a major risk that has been in the market in the past few months. It will also lead to lower crude oil prices and eliminate the inflation risk that may have pushed the Federal Reserve to hike interest rates.
Still, the main risk is that the war may continue. For one, Israel is said to be disappointed with ongoing ceasefire. Also, Iran has warned that it may block the Red Sea, where about 13% of all crude oil passes through.
There is also a risk that the US is using the ceasefire to increase its military capacity in the region. For one, over 50k troops have been assigned to the region.
Buying the dip as Crypto Fear and Greed Index rises
The crypto market rally is also happening as investors buy the dip as the Crypto Fear and Greed Index jumps. Data shows that the index has moved from the extreme fear zone of 4 to 57 today. There is a sign that it will jump and cross to the green area soon.
Bitcoin and other altcoins always do well when there is greed in the market as this leads to a risk-on sentiment. A move from the neutral level to the greed area will supercharge the ongoing crypto rally.
This also explains why the volume and futures open interest have jumped recently. Data shows that the futures open interest has jumped to over $123 billion, a sign that investors are starting to take risks. Also, data shows that spot Bitcoin and Ethereum ETFs have added millions of dollars in inflows this week.
The same is happening in the stock market where the S&P 500 Index jumped to a record high as the Fear and Greed Index jumped to the greed zone of 70.
Potential dead cat bounce
However, there is a potential risk that the ongoing crypto rally today is a dead-cat bounce (DCB) or a bull trap. A DCB is a situation where an asset in a freefall bounces back briefly and then resumes the downtrend. It happens when inexperienced traders are being trapped.
We have seen many bull traps in the past few months which calls for caution before one goes all in on the crypto market. Analysts recommend some risk management strategies like position sizing, leverage control, and using a stop loss.
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