KEY POINTS

  • Bitcoin's rally was caused by a decrease in open interest in the futures market and an increase in buy volume from the spot market
  • Bitcoin has recovered 100% since its massive drop last month
  • The $5,800 support still serves as a significant area for BTC as it prevents a further drop below $4,000

Bitcoin (BTC) diving to a cliff in March and collapsing to prices not seen since a year ago is now a distant memory. The top crypto didn't take long to recover at more comfortable levels, which, as of the time of writing, is $7,000. When it extended its drop to $3,858 in March, it was able to close 46% higher from that low on the very same day.

The quick comeback by BTC is a remarkable feat for the crypto and the rest of the market since the coronavirus was thought to be a black swan event that could erase the entire industry from the financial spectrum. But the 100% surge in 26 days is perhaps Bitcoin's way of saying that it is here to stay. 

Cointelegraph named several factors why a rally took place. The first one was caused by the spot market that led the buying after the drop. The decline in open interest in futures exchanges and the increase in buy volume in the spot market created a shift in the market that propelled bulls.

"Cascading liquidations were most prominent on BitMEX, which offers highly leveraged products. Amidst the selloff, a Bitcoin on BitMEX was trading well below that of other exchanges. It wasn't until BitMEX went down for maintenance at peak volatility (citing a DDoS attack) that the cascading liquidations were paused, and the price promptly rebounded. When the dust settled, Bitcoin had briefly spiked below $4000 and was trading around the mid $5000s," Coinbase explained.

What this implies is that Bitcoin shouldn't have dropped after all. On Coinbase's platform, users buying Bitcoin at the initial fall only added to the cascade of liquidations, which furthered BTC's decline.

And the last factor highlighted was the significance of the $5,800 support level that Bitcoin quickly floated to after grazing below $4,000.

The halving, which will reduce block rewards for miners by half, is set to take place in May, and plenty of BTC believers think that this supply reduction protocol will prop up prices. The past two halvings have effectively lifted the king of cryptos and stabilized it beyond each pre-halving price range.

Bitcoin's demonstration that it can instantly pull in buyers to help it shake off a multi-market meltdown may be a shred of direct evidence that enough demand is there to satisfy a post-halving price rally.

bitcoin-cash-cryptocurrency-mining-blockchain-invest-getty_large Can bitcoin recover? Photo: GETTY IMAGES