Why is crypto going up? It may be the most critical question for investors right now.
Technically speaking, the total crypto cap is up by over 5%, approaching the $3 trillion mark and reclaiming this zone for the first time since losing it in the mid-January cycle.
Back then, the total market cap reached $3.3 trillion, while Bitcoin [BTC] peaked at around $93k. The market is once again approaching this significant resistance area, with only a few more inflows to go for a breakout.
The critical question now is what is driving this move. As the chart below shows, traders liquidated more than $900 million in short positions on the 21st of September alone, marking the strongest single-day short squeeze in over a month.
The previous major squeeze hit on the 21st of August, when traders closed more than $1.25 billion in short positions. What followed was nearly four weeks of consolidation, with BTC remaining below $80k.
Short covering may drive prices higher rapidly, but demand for the asset may not last long.
As crypto nears the $3 trillion area of resistance again, the important question is whether new Spot inflows are strong enough for the move to gather momentum or whether another short squeeze is driving the market higher.
In essence, why is crypto going up?
From a sentiment perspective, early rally FOMO seems to be feeding into the move. Similar to the August cycle, BTC ETF flows have turned positive, with $1 billion in net inflows on the 21st of September.
This fresh buying forced leveraged shorts to close, creating another layer of upward momentum.
The critical question is now whether sustained Spot demand can keep this feedback loop going and turn the short squeeze into a broader rally. Otherwise, buying will fizzle out and crypto will once again enter a consolidation phase, as it did in August.
Key on-chain signals show why crypto is going up
The similarities between the August and current cycles are not limited to the ETF inflows.
From a technical perspective, macro FUD is also starting to unwind. Similar to the August rally, oil prices have dropped more than 8% in less than two weeks, while the 10-year Treasury yield has retreated from the 5% level.
This goes against earlier expectations of yields moving above 6% following the Fed rate hike. But one critical metric is still lagging.
As can be seen in the chart below, Bitcoin’s Coinbase Premium Index still has to enter the green zone, implying that U.S. investors remained hesitant to join the rally. It climbed to roughly 0.03 during the August move as BTC approached the $80,000 peak.
Therefore, the current scenario is intriguing.
If the Coinbase Premium starts climbing along with ETF inflows, it would indicate that the U.S. Spot demand is finally catching up. Until then, crypto’s rise seems to be driven by a combination of ETF buying, short covering, and an improving macro backdrop, rather than a true demand surge.
