Bitcoin Rallies 2.6% in Thin Holiday Trading on Spot Demand

Bitcoin rises 2.6% during thin holiday trading as spot demand strengthens, derivatives positioning shifts, and liquidity remains constrained globally.

Bitcoin posted a notable rebound during holiday-thinned trading conditions, rising approximately 2.6% in early. However, analysts warn that low liquidity misled price signals significantly. Meanwhile, the rally seemed to be motivated by spot and perpetual buying, rather than forced liquidations.

Bitcoin Gains as Spot Demand Dominates Thin Holiday Markets

Bitcoin trade higher with limited participation in global market. During the move, long liquidations were worth less than $40 million. Therefore, the price increase did not reflect a general unwinding of leverage.

Instead, spot buying and endless accumulation aided the advance. Market observers reported renewed demand of the institutional style during illiquid windows. Consequently, the rally was quite lacking in conviction despite the visible upward momentum.

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At the time of reporting, Bitcoin was trading for close to $89,823.75 per coin. This was a 2.42% increase from the previous 24 hours. However, prices briefly pushed above the $90,000 level earlier.

Thin holiday liquidity helped exaggerate price moves in the derivatives venues. As a result, relatively small flows produced outsized reactions in prices. Therefore, analysts cautioned against interpreting short-term direction.

Some of the demand reportedly followed comments from Strategy founder Michael Saylor. He hinted overnight of possible further purchases of bitcoin. Historically such signals have been used in support of bids during periods of low liquidity.

This rally notwithstanding, overall participation remained subdued. Open interest across Bitcoin derivatives markets fell dramatically. Consequently, capital mostly remained on the sidelines waiting for better signals.

Following recent options expiry, market structure changed materially. Once upon a time, dealer placement helped to quell volatility. However, that dynamic changed rapidly after expiry passed.

Derivatives Positioning Signals Conditional Upside Risk Above $94,000

After Friday’s expiry, Bitcoin perpetual funding rates moved significantly high. On Deribit, funding went from being near-flat to above 30%. This shift suggests that dealers are now exposed to short gamma to rising prices.

When dealers are short gamma, rising prices are forced to hedge. Therefore, they necessarily will have to buy spot Bitcoin or near-dated call options. This process can add upward price momentum, at least temporarily.

Such dynamics appeared when Bitcoin briefly breached $90,000. In the course of that move, there was aggressive buying of perpetual contracts. Further, activity was higher in the BTC-2JAN26-94k call option.

Analysts called this a possible gamma feedback loop. If spot prices sustain above $94,000, hedging flows could intensify. As a result, the volatility on the upside may be fast-growing.

On the other hand, hedging pressures have been taken off. Notably, the December $85,000 put option was not rolled forward. This reduced the immediate downside protection demand.

However, conviction is still low in broader markets. Open interest dropped about 50% after expiry. Therefore, positioning appears lighter than it did earlier in the month.

Lower open interest indicates that traders had a lot less risk exposure. As such, directional confidence is still limited. Most participants are looking forward to better liquidity conditions.

With holiday schedules still suppressing volumes, price discovery is still impaired. Consequently, analysts expect more clarity once liquidity becomes normalized. Until then, the volatility may continue to be episodic.

Overall, the rally in Bitcoin is based on technical positioning rather than a general feeling of conviction. Spot demand gave support, while derivatives added to short-term moves. Ultimately, sustained trends probably depend on liquidity coming back to the global markets.

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