Bitcoin extends rally after breakout, driven by short covering and Strategy buys

FUNDAMENTAL OVERVIEW

Bitcoin saw a sharp increase on Friday following the disclosure of a CFTC crypto rulemaking submission that was filed on Thursday. The documents were sent for regulatory examination after the CLARITY Act did not progress through the Senate earlier this week. By doing so, the CFTC indicated its plan to develop a crypto regulatory structure under its current powers instead of awaiting legislative action.

The following day, bitcoin's momentum intensified further after the cryptocurrency broke out of its month-long range. The move was possibly driven by short covering following the substantial breakout. Additionally, Strategy resumed buying bitcoin, acquiring another 950 BTC for around $75.7 million. Though the purchase is small, it is symbolically significant as Strategy had halted its acquisitions for a number of weeks.

Macroeconomic factors also played a role. The Federal Reserve's dot plot, which was less hawkish than anticipated, provided the crypto market with the go-ahead for a recovery. Subsequent gains were fueled by idiosyncratic catalysts, declining oil prices, optimism over de-escalation in the Middle East, and a general positive risk appetite.

Attention now shifts to the UN General Assembly. President Trump has scheduled a sideline meeting with Gulf leaders to talk about the next moves in the conflict with Iran. Iran's delegation has also been permitted to attend the Assembly, making a meeting between Trump and Iranian President Pezeshkian probable. It should be noted that any reduction in tensions would likely drive oil prices down, alleviating inflation and rate hike worries, and in turn buoy risk sentiment and bitcoin.

Economic releases will also be significant given how the market is currently priced. When market positioning and expectations are extended, even a small change in data can cause a big reversal. Should US economic figures begin to come in weaker than expected, the anticipation of aggressive rate increases will probably diminish, which could offer bitcoin a further lift.

BITCOIN TECHNICAL ANALYSIS – DAILY TIMEFRAME

Bitcoin has exited its month-long consolidation range, paving the way for a move toward the 98,000 mark. A fresh uptrend line has emerged that may provide support. Should the price retrace to that line, buyers are likely to step in with a clearly defined risk under it, aiming for new highs. Conversely, sellers are seeking a drop below the trendline to push the decline toward the 76,000 support level.

BITCOIN TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

An ascending trendline is shaping the bullish momentum on this timeframe. In the event of a pullback, buyers are anticipated to utilize the trendline as support, with a clear risk set under the 82,500 level, aiming to drive prices to new peaks. On the flip side, sellers are watching for a drop back below 82,500 to prolong the correction toward the larger trendline.

BITCOIN TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

From a risk management viewpoint, buyers may find a more favorable risk-to-reward ratio near the trendline and the 82,500 support area to position for additional gains. Sellers, however, require a breakdown below that support to widen the correction toward the daily trendline.

UPCOMING CATALYSTS

Today's agenda includes Trump meeting with Gulf leaders and possibly Iran's President at the UN General Assembly. Flash US PMIs are due tomorrow. A Trump-Xi meeting is on the calendar for Thursday.