Bitcoin, the largest cryptocurrency on the market, has had a turbulent week.
After breaking through $40,000 for the first time since mid-June on Monday, the leading cryptocurrency has done so again just two days later. Bitcoin surpassed $40,000 in the early hours of Wednesday before falling back, but it has since regained the crucial milestone.
Furthermore, despite growing regulatory scrutiny in the crypto market, the main coin is experiencing a positive surge. Binance, the largest exchange in the industry, has been feverishly altering its posture on several fronts in response to pressure from international regulators.
One of the most recent modifications made by Binance is the reduction of high leverage trading from 125x to 20x. Traders that use leverage to make trades might greatly increase the size of their bids. Naturally, the downside can be amplified in the same way, resulting in widespread liquidations even among experienced traders.
The amount of leverage that consumers can use has been reduced by FTX, which is run by CEO Sam Bankman-Fried.
Binance CEO Changpeng “CZ” Zhao has also expressed interest in hiring a “contingent CEO” with extensive “regulatory and compliance knowledge.”
All of these changes appear to be in response to regulatory efforts to clean up the crypto business around the world.
Senator Elizabeth Warren (D-MA) cautioned that “as the crypto market increases, so do the hazards to our financial stability and our economy” during a Senate Banking Committee hearing on Wednesday.
Bitcoin markets are proving to be resilient.
Although cryptocurrency speculators might be fickle, there were genuine market dynamics at work this week that helped Bitcoin exceed $40,000 twice. The most notable example is a so-called “short squeeze.”
During the Gamestop trading frenzy earlier this year, the financial term became well-known. After a large group of Redditors spotted a large number of short positions on GameStop stock, they banded together and began buying it up like crazy.
As a result, a millennia-long market war began.
On one hand, there were major hedge funds who were short or hoping to profit if the stock plummeted, and on the other hand, there was a merry band of Internet investors who were long, betting that GameStop would skyrocket. The short positions began to lose money as the buy orders piled up, and investors in these positions needed to start buying the stock to return any loans they had taken to get into the position.
The move, of course, generates an incredibly bullish occurrence. In crypto markets, the same thing can happen.
Bitcoin’s move on Monday, according to ex-banker and analyst Alex Krüger, was “a basic short squeeze of epic proportions.”
However, it remains to be seen how long Bitcoin can maintain this level. The recent summer decline paled in comparison to the spring fireworks.