Bitcoin ended one of its biggest rallies in September with a notable decline, as the digital currency fell below $65,000, dampening the optimism that had prevailed at the start of what has historically been one of the best months for cryptocurrency returns.
Technical signals
“After a strong rally since early September, technical indicators now point to challenges for Bitcoin,” said Brian Strogatz, head of spot trading at cryptocurrency exchange FalconX.
He explained that the Stochastic RSI indicates that the market is in an overbought state, with large sell walls appearing, especially at the $66,150 level, from large Bitcoin holders on the exchanges.
The native cryptocurrency fell 1% to $64,150, reducing its monthly return to around 7.6%. However, it was still the biggest September gain in 12 years. Bitcoin has only closed lower in October twice since 2013.
“After a three-week rally towards resistance at $65,000, I have seen a decline in demand for spot trading as momentum traders start to take profits and increase supply in the market,” said Chris Newhouse, director of research at Cumberland Labs.
Meanwhile, bitcoin prices were heavily influenced by the expiration of $5.8 billion worth of options contracts on Friday, among the largest this year, according to data compiled by crypto derivatives trading platform Deribit.
The $65,000 level was important to many traders, as the expiration triggered a spike in volatility due to so-called gamma hedging, a phenomenon that occurs when large contracts expire and where brokers offering these contracts buy or sell large amounts to try to neutralize their short exposure.
“The sell flows were mainly driven by profit-taking via active spot selling on exchanges, as well as new short positions entering as open interest increased in the Bitcoin perpetual futures market,” said Bohan Jiang, head of OTC options trading at Abra. When might Bitcoin take off?
Even with today’s cryptocurrency price decline, Bitcoin finished with a strong positive return in September. Bitcoin rose about 7% during the month, marking its best September performance since 2013.
September’s positive return could bode well for October, as each previous green September has been followed by further gains the following month. October has historically been one of the strongest months for Bitcoin, with positive monthly returns 9 out of 11 since 2013.
However, options traders expect a bigger rally to come only after the US elections in November, and are therefore bracing for further weakness in the coming weeks, according to Jake Ostrowskis, an over-the-counter trader at crypto market maker Wintermute.
