Bitcoin hits $40,000, wiping out combined with ETH $160 million of shorts

Bitcoin and other cryptocurrencies rallied on Friday, reversing losses from a few days ago. Ether (ETH), the world’s second-largest cryptocurrency, gained 13% over the past 24 hours, while an 11% rise in BTC and the NEAR token surged as much as 20%. The rise in altcoins relative to Bitcoin could reflect a greater appetite for risk among crypto investors.

Technical indicators point to additional price gains for Bitcoin if buyers are able to maintain support above $37,000 over the weekend. Further, a decisive move above $40,000 could signal the start of a recovery phase.

“Since late last year, there has been a continuing trend that even Bitcoin’s calming is enough for altcoins to return to growth and outperform the first cryptocurrency,” Alex Kuptsikevich, an analyst at FxPro, told CoinDesk.

Over the past few weeks, several indicators such as the Bitcoin Fear & Greed Index, relative strength index (RSI), and a six-month high in the Bitcoin options put/call ratio signaled bearish extremes in the crypto market. Some analysts expect crypto buyers to return, similar to what occurred after the July 2020 price bottom at $28,000 BTC.

The crypto rally on Friday also forced many short sellers to liquidate positions.

Liquidations occur when an exchange forcefully closes a trader’s leveraged position as a safety mechanism due to a partial or total loss of the trader’s initial margin. That happens primarily in futures trading.

Ether traders, who reacted to a larger price jump, exited short positions in greater numbers than Bitcoin traders over the past 24 hours. While the data does not indicate an extreme short squeeze, the steady decline in long liquidations since January 20 crash could mean that selling pressure is starting to fade.

“Much of the momentum is likely due to $160 million of combined short liquidations for BTC and ETH over the past 24 hours,” FundStrat wrote in a Friday note. That means large liquidations are partly responsible for accelerated price movements in the crypto spot market.

Two weeks earlier, Bitcoin lost over 9% and dropped below $33,000 to its lowest level in 6 months. After the Federal Reserve signals its intention to withdraw stimulus from the market, riskier assets like cryptocurrencies have suffered. As Bloomberg reported, Bitcoin’s decline since that November high has wiped out more than $570 billion in market value, and roughly $1.17 trillion has been lost from the aggregate crypto market.