- Bitcoin has seen a rally in buy calls on social media.
- However, the currency remains at risk of a short-term correction.
Bitcoins [BTC] Social activity has seen a significant increase as the cryptocurrency market anticipates the adoption of spot Ethereum [ETH] Exchange rate fund [ETF].
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When an asset sees an increase in buy calls among its traders on social media, they express positive sentiment about the asset’s continued price growth. Some traders even consider it a good entry point as they see prices as low and due for an upturn.
BTC holders should look before the jump
While this may provide a good entry point for some, ‘paper hands’ have been known to sell when an asset’s social activity increases in this way.
This is because the increase in BTC purchases among its traders is often due to speculation and not supported by a corresponding demand for the coin. Therefore, newer investors, who need more conviction in the coin’s long-term potential, might be reluctant to hold during these periods, even if social sentiment is positive.
Also, short-term traders often see the increase in buy calls as an opportunity to make a profit. Therefore, a temporary sell-off is possible even amid overall bullish sentiment.
Furthermore, BTC’s Market Value to Realized Value Ratio (MVRV) yielded a high value of 153.19% at the time of writing. The metric tracks the ratio between the current market price of the coin and the average price of each acquired token.
Source: Santiment
When it rises in this way, the asset is said to be overvalued, and on average, coin holders are sitting on profits. This can lead to a spike in selling pressure, as investors are more likely to take profits when the potential returns are high.
The increase in BTC funding rates also increases the likelihood of a short-term price correction. On May 21, the coin’s funding rate on cryptocurrency exchanges reached 0.018%, the highest level in a month, according to Coinglass data.
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Source: Coinglass
When an asset’s futures funding rate rises, it is generally a bullish signal, indicating strong demand for long positions.
However, if the price gets too high and becomes unsustainable, it can lead to forced selling through leveraged long positions. This can cause price fluctuations and result in unexpected price drops.