The stock market is also flashing green, with the Dow Jones up 600 points and the S&P 500 recording a gain of 100 points. As reported by Cointelegraph, Bitcoin’s price action remains closely correlated with US stocks, and today’s rally is no exception to this trend.

Here are some of the reasons why the bitcoin price is soaring today.

Bitcoin open interest is still tilted towards short traders
Since the bitcoin price collapsed below $16,000 on November 22, the open interest on bitcoin futures has skyrocketed. Sharp price movements in the price of bitcoin can trigger another liquidation event, but it is hard to say whether the move will be bullish or bearish.

If inflation has peaked, there is a possibility that the Federal Reserve will pivot to raise interest rates. Many traders agree that if the Fed relies on its current policy of quantitative tightening and raises interest rates, the price of BTC could surge higher and liquidate a significant portion of the short interest in the futures contract.

Bitcoin options hit prices. Source: Coinglass
The FTX explosion was followed by a wave of sell-offs that pushed bitcoin’s price to a yearly low of $15,476. Historical data shows that $549 million in crypto longs were liquidated on November 7, sending the price of Bitcoin below $16,000.

Bitcoin filter. Source: Coinglass
Inversely, liquidation shorts directly help push the bitcoin price higher by imposing automated buying pressure. On December 12, $93 million in short positions were liquidated which could help boost the price of Bitcoin.

The Federal Open Market Committee (FOMC) of the Federal Reserve begins its meeting on December 13 with a decision on expected interest rates the next day. Positive CPI results will influence the FOMC’s decision and could put significant pressure on open short positions.

Long-term data is in favor of Bitcoin, according to market analysts
Investors’ confidence in the cryptocurrency market could also increase due to their belief that the US Federal Reserve can raise interest rates on a smaller scale in the next two months and throughout 2023 due to positive CPI numbers.

In the Fed statement, the possibility of a policy shift remains open and linked to inflation:

In order to reach a monetary policy stance that is restrictive enough to bring inflation back to 2% over time. In determining the pace of future increases in the target range, the committee will take into account the cumulative tightening of monetary policy, the delays with which monetary policy affects economic activity and inflation, and economic and financial developments.
According to MacroMicro, a company that publishes investor consensus estimates of expected changes in interest rates, they show that interest rates may be lower than expected in the near future.

Interest rates may go down. Source: MacroMicro.com
The chart indicates a possible slowdown in the rise in interest rates. The general sentiment shows that future rates may decline and investors believe that this has created the potential for a broad cryptocurrency market recovery.

The S&P 500 and Nasdaq provide an overview of the economy in general. Currently, Bitcoin, Nasdaq, and S&P 500 share a high correlation coefficient.

Bitcoin, Nasdaq, DXY, and SPX. Source: TradingView
So if interest rates ease and the economy grows, Bitcoin could continue its growth trajectory if a similar rally occurs in the stock markets. The better the overall climate, the better for the Bitcoin price.

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