Is the correction over?

After the news came out that Binance would be sued, we saw a lot of fear in the market and a rapid and deep correction, reaching a low of $25.4K.

Yesterday, it was announced that Coinbase is also being sued, which initially caused a downward reaction, but we quickly saw a reversal.

Currently, the price is consolidating, and at the time of writing, it is around $26.7K. However, how did these significant price impulses occur?

In this trade letter, I will delve deeper into the price action of Bitcoin over the past few days, what I expect to see for higher prices, and where my focus will be in the coming days.

Price was going down, Open Interest goes up

Before the news about Binance came out, we already noticed that the price was moving slightly downward. What stood out was that the Open Interest kept increasing. After the news came out on Monday, we saw a small flush in open interest, but it was certainly not "reset."

A conclusion we can draw from this is that many people were in short positions before the news. The small flush in Open Interest represents people who were wiped out of the market with their long positions.

After we reached the low, we moved sideways. What stood out was that the Open Interest immediately increased again in large numbers. This means that many people are taking new positions.

Funding rates turning slightly negative

A good indicator to see how people are positioning themselves is the funding rate. However, in this consolidation, it was challenging to draw a definite conclusion. This is because the funding rate remained around the baseline continuously. However, it is worth noting that just before the upward impulse, we saw a small flip and the funding rate was slightly negative.

Coinbase news causing a short squeeze

After the news about Coinbase came out, we initially saw a downward reaction, but it quickly reversed. We witnessed a significant market turnaround due to a short squeeze. The late shorters who entered the market were wiped out.

We can see this from the Open Interest and the number of liquidations that took place. During the upward squeeze, we saw a reset in open interest and a lot of liquidations, which ultimately led to an upward impulse.

One thing I want to add here is that this upward squeeze does not necessarily mean strength in the market. During a short squeeze, the positions that are liquidated are immediately bought up. If this happens in a large quantity, we experience a snowball effect, resulting in a rapid impulse. So yes, this move was good and impressive, but it doesn't immediately mean that the correction is over and we are heading towards new highs.

Weekly close is going to be important

What will be important for me this week is the weekly close. If we look at the price action of the past year, we can see that a weekly swing failure can be quite significant. Three times before, we saw a significant price impulse after a swing failure on the weekly timeframe.

What I want to see is a weekly close above $25.8K. If this happens, in my opinion, a move towards at least $31K is quite possible.

ETH looks stronger

Perhaps you might want to consider taking a position in Ethereum earlier if you want to anticipate higher prices. Ethereum is showing more strength than Bitcoin, as can be seen in the chart. We can see that Ethereum has created a new higher low while Bitcoin has made new lows. This creates compression in ETH, and if the situation with Bitcoin turns out favorably, ETH might potentially gain more momentum.

All in all, we can say that we have had some intense days, but the situation could have been much worse. I am very curious about how this week will close, and I will act accordingly based on that perspective.

For now, I wish you all a great day!

Written by: Daan Foppen