Bitcoin nears US$40,000 as shorts fuel rally on Amazon speculation

Joanna Ossinger and Vildana Hajric | Bloomberg

Bitcoin surged close to $US40,000 as a flurry of short-covering intensified a rally apparently sparked by speculation over Amazon’s involvement in the crypto industry.

A job posting from the retail giant seeking an executive to develop the company’s “digital currency and blockchain strategy” stirred questions among analysts over whether the move could eventually lead to Amazon accepting bitcoin as a method of payment.

As the largest digital token gained on the speculation, investors rushing to cover bearish bets fuelled the rally, with the coin at one point up more than 15 per cent on Monday (Tuesday AEST) to $US39,792, its highest in more than a month. More than $US950 million ($1.3 billion) of crypto shorts were liquidated on Monday, the most since May 19, according to data from Bybt.com.

“The extent of the jump was probably driven by over-leveraged shorts,” said Vijay Ayyar, head of Asia Pacific at crypto exchange Luno in Singapore, while adding the rumours over Amazon likely had a role to play, too.

Bitcoin was up 15.5 per cent to $US39,810 as of 2.42pm in New York (4.42am AEST). Meanwhile, Bloomberg News reported a US probe into Tether is homing in on whether executives behind the token committed bank fraud. Ether rose ahead of an upgrade that’s due on August 4 that will reduce the amount of outstanding tokens by destroying some of them every time it’s used to fuel transactions on the world’s most-used blockchain.

The surge on Monday brought crypto markets back to life after they’ve been stuck in the doldrums for months. On Binance, the largest crypto exchange, bitcoin perpetual contracts jumped as much as 30 per cent over an hour in early New York trading, a sign of extreme volatility in one of the coin’s most liquid derivatives.

There’s been less volatility in bitcoin since mid-May and the enthusiasm for crypto has dissipated somewhat amid a regulatory crackdown in China and criticism for its toll on the environment.

The Amazon job posting was reported by CoinDesk last week.

“It is exciting to see bitcoin rally 10 per cent overnight and it is clear that the general market sentiment has improved spectacularly in the last few days,” said Loukas Lagoudis, executive director at digital-assets hedge fund ARK36. “However, investors should proceed with caution and avoid overtrading, noting that the liquidity is still relatively low as we are heading into the holiday season.”

Some technical signals point to the coin moving too far too fast. Though Monday’s price spike pushed bitcoin above its 50-day moving average, the coin failed to breach the key $US40,000 level during the upsurge. It also broke through the upper trading band of its trading envelope — an indicator that smooths moving averages to map out higher and lower limits — signalling a revision to the mean.

For many, the next major hurdle will be its 100-day moving average of around $US40,700, followed by its 200-day moving average.

To Trenchev, bitcoin’s recapturing of its 20-day and 50-day moving averages is a healthy start. “I’d now like to see BTC close above $US40,000 and then move above its 200-day moving average — which is just below $US45,000 — before we can start to properly relax again,” he said.

Copyritght @ 2021 Bloomberg

Published by Australian Financial Review

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