Market Wrap: Bitcoin Rises to $32K, Outperforming Altcoins

Bitcoin (BTC) is showing signs of life following nine consecutive weeks of losses. It appears that extreme bearish sentiment and oversold signals have encouraged some buyers to return from the sidelines.

The bulk of BTC’s relief bounce was seen on Sunday when the cryptocurrency rose above $30,000. The weekend price jump was bitcoin’s largest daily return since March, with the price increasing by 7.8%, according to Arcane Research.

Meanwhile, most alternative cryptos (altcoins) underperformed bitcoin on Tuesday, which suggests traders are still not comfortable with taking on additional risk. Bitcoin’s market cap relative to the total crypto market cap ticked higher over the past three days after breaking above a yearlong downtrend on May 13. Typically, alts underperform BTC during down markets because of their higher risk profile.

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Still, some altcoins rallied on Tuesday as bearish sentiment began to wane. For example, Cardano’s ADA token and Axie Infinity’s AXS token rose by as much as 15% over the past 24 hours, compared with a 4% rise in BTC over the same period.

In contrast, Avalanche’s AVAX token declined by 3% on Tuesday, and Monero’s XMR token was down by 4%. Overall, trading conditions remain choppy in cryptos and stocks despite the current pause in risk-off conditions.

On Sunday, BTC’s price spike triggered an uptick in short liquidations, which was the largest since May 11. That could reflect a short squeeze, which happens when traders who are short BTC scramble to close out of their positions when the price unexpectedly rises.

Liquidations occur when an exchange forcefully closes a trader’s leveraged position as a safety mechanism because of a partial or total loss of the trader’s initial margin. That happens primarily in futures trading.

Bitcoin and other cryptos appear to be deeply oversold, according to some indicators.

The chart below shows MRB Partners’ cyclical momentum indicator, which is the most oversold since the 2018 crypto bear market. That could point to a short-term bounce across cryptos.

Still, momentum indicators can remain in oversold territory while prices are in a downtrend. At times, a cross above oversold thresholds can confirm a bullish shift in price, similar to what occurred at the end of previous bear markets. That could take a few weeks to develop.

Some analysts are skeptical about the latest price bounce. “While it is plausible that BTC can continue its reversal after posting its first green weekly candle in 10 weeks, the persistent macro headwinds make us cautious in the immediate term,” FundStrat wrote in an email.

MRB published a report last week that discussed several macroeconomic headwinds that could weigh on bitcoin’s price despite oversold readings. For example, BTC’s sell-off since last November coincided with tighter liquidity conditions, a decline in global negative yielding debt and lower amounts of cash held in money market funds and savings deposits – a complete reversal of the boom years for cryptos and stocks.

Most digital assets in the CoinDesk 20 ended the day higher.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.