If you’re watching this video, chances are it’s
because the crypto market is rallying. Now, even though there are many reasons why the crypto
market rallies, they tend to fall into the same old categories. But please don’t put us in the
same category. And that’s why today we’re going to take a look at the reasons why the crypto
market is rallying and whether it’s a bull trap or just the beginning of higher highs. My name
is Nick. Stay tuned. I’ll start by saying that nothing in this video is financial advice. It’s
just educational content intended to inform you about the crypto market dynamics. And if this is
the kind of content you want to get more of, then smash that like button, subscribe to the channel,
and ping that notification bell. With that said, crypto market rallies tend to be caused by a
bullish macro catalyst, a bullish crypto catalyst, or some epic combination of both. Before we dive
into all of these catalysts though, it’s important to talk about the most important catalyst of all,
and that’s leverage. Specifically, short squeezes. Short squeezes occur when crypto traders bet that
crypto prices will go down, but crypto prices go up instead. The result is that they’re forced to
buy crypto close to their leveraged positions. And the practical effect of this is that it pushes
crypto prices higher than everyone expects, especially in the shorter term. Notably, the
same can happen in reverse when crypto traders bet that crypto prices will go up, but they
go down instead. And the result is they’re forced to sell crypto to close their leveraged
positions. The practical effect of this is that it pushes crypto prices lower than everyone expects,
especially in the short term. And this is called a long liquidation. Both long liquidations and short
squeezes tend to be short-lived. And this is why if you see crypto prices rallying, the first thing
you need to do is to check out a website like Coin Glass to see how much of the price action is
being driven by short squeezes. And if you see that hundreds of millions or billions of dollars
of shorts got liquidated, then the pump is likely primarily leveraged driven. And this squeezed
driven pump needs to be followed by high buying volume on spot markets to continue. And if there
is a surge in buying on spot markets, then this can trigger an even bigger short squeeze, creating
a positive feedback loop that can last for days. And that’s why it’s important to zoom out and
check out where the next levels of resistance are for the coin you are watching. If the rally
is genuine, then it will blast through those resistance levels. If it’s not, then it would get
rejected at the next resistance. Do note that you can refer to our video about crypto trading for
beginners if you have no idea what I’m talking about. And that’s right over here. Now, two more
things to know about short squeezes. The first is that they tend to occur after the crypto market
has been chopping or grinding lower. And that’s because when the crypto market is chopping and
grinding, traders start to feel bearish. So, they start to bet that crypto prices will go down by
going short. The second thing to know about short squeezes is that whales can and often will hunt
short positions on exchanges. In plain English, large crypto traders will occasionally purposely
push prices higher to trigger a short squeeze, causing prices to spike much higher than most
traders and investors expected. Naturally, the purpose of this is to create FOMO and trick
anyone who sold into buying back. And this is practically why crypto prices sometimes rally
above a key psychological level or resistance level that everyone is watching, like 10 cents or
$1 or the $50 moving average or Fibonacci level. Crypto whales know that many investors will sell
just below these levels, and many traders will go short around these levels. So, whales push
prices higher to liquidate the traders and cause investors to FOMO back in. And on that note, if
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Now, this begs the question of how you can know that the current rally is the real deal or just
a bull trap, a final pump before an even bigger dump. The answer is twofold. And the first part
is to figure out if macro conditions are bullish or bearish. And this might sound complicated, but
there’s a very simple way to do it. Check and see what major stock indices are doing, as well as the
US bond yields and the US dollar. Starting with major stock indices, if you can see that the S&P
500 has been rising in recent weeks and looks like it’s going to continue its current uptrend, then
this is a sign that macro conditions are bullish. Similarly, checking the Russell 2000 or Rut will
give you a sense of how much risk appetite there is. If the rut has been rising in recent weeks
and it looks like it’s going to continue its current uptrend, then this is another sign that
macro conditions are bullish. And it’s one that’s particularly bullish for altcoins. And that’s
because the rut has historically been closely correlated to altcoins. Every time the rut breaks
out, altcoins tend to follow suit as both asset classes fundamentally lie at the end of the risk
spectrum for stocks and for crypto. But of course, stock indices like the S&P 500 and the rut
will only continue rallying if interest rates and liquidity continue to stay loose or loosen
further. And this is where US bond yields come in. The 10-year Treasury yield is used as a
reference rate for interest rates on loans such as mortgages. As such, a higher 10-year yield is
bearish, whereas a lower 10-year yield is bullish. It should be easy to spot the trend. Whereas
bond yields are a proxy for interest rates, the US dollar is a proxy for global liquidity, aka
money supply, specifically the DXY or Dixie. And this is because the world owes tens of trillions
of US dollar debts. And when the Dixie rises, these debts become more expensive, which means
costs need to be cut elsewhere. When the Dixie falls, these debts become cheaper, resulting
in extra money that can be spent elsewhere. And obviously, crypto follows global liquidity.
The caveat is that crypto is believed to lag global liquidity by a few months. And this
means that when you’re analyzing the Dixie, you need to focus less on what the Dixie is
currently doing and more on what it has been doing over the past few months. If it fell a few
weeks and months ago, liquidity conditions will remain positive for crypto. Even if the Dixie is
starting to rise right now, the catch is that this liquidity will only continue to flow into crypto
if investors feel comfortable enough to continue investing in risk assets. In other words, global
liquidity only flows into crypto when there are no bearish macro catalysts that are increasing
uncertainty, like a trade war or an actual war. So long as there are no bearish macro catalysts
like that, then liquidity should continue to slowly flow into crypto. On the flip side, if
there are bullish macro catalysts like the Fed being more doubbish than investors expected
or the Treasury issuing fewer long-term bonds, then this can supercharge how much liquidity is
flowing into risk assets like crypto. And that’s just because getting bullish macro catalysts
against a bullish macro backdrop basically gives a green light to investors to turn the speculation
dial up to 11. Good times. Anyways, you’ll recall that figuring out if macro conditions are
bullish is just half of the battle when it comes to figuring out if the current crypto rally
will continue. The other half, the second part of the answer is to figure out if crypto conditions
are bullish. Again, this might sound complicated, but there’s a very simple way to do it, and that’s
to check what major cryptocurrencies are doing, starting with Bitcoin. Whereas the S&P 500
is the simplest proxy for macro conditions, BTC is the simplest proxy for crypto conditions.
If BTC has been rising in recent weeks and looks like it’s going to continue its current uptrend,
then there’s a high chance that the crypto rally you’re watching will continue. The caveat in this
case is that if BTC starts to go parabolic, this can cause altcoins to trade flat as investors drop
them to chase BTC. Now, whereas the Rut is a proxy for risk appetite among investors more broadly,
large cap altcoins such as ETH are a proxy for risk appetite among crypto investors specifically.
If ETH has been rising in recent weeks and looks like it’s going to continue its current uptrend,
then there’s a high chance that the altcoin rally you’re watching will continue. The catch in this
case is that you need to check the ETH BTC chart to see that. Now, to quickly bring you up to
speed, the ETH BTC chart shows you ETH strength compared to BTC rather than the US dollar. And all
you need to know is that the ETH BTC chart should also be in a clear uptrend and should look like
the current uptrend will continue, at least in the short term. And this further increases the
chances that the altcoin rally you’re watching will continue as it suggests capital is slowly
rotating out of BTC into altcoins. Similarly to stocks, how long a crypto will rally ultimately
depends on how much attention and capital is flowing into that coin or token. Attention comes
first and capital follows. Announcements around partnerships, upgrades, and exchange listings
are just a few examples of bullish catalysts that can keep a crypto project in the spotlight
for longer. Do note that you’ll have to do the research to find these catalysts. Thankfully,
there are broader crypto catalysts that can keep attention focused on the crypto market as a whole.
Examples here include spot ETFs being approved and listed on traditional exchanges, regulations
around crypto being dropped, and traditions announcing crypto integrations and partnerships.
If the macro backdrop is bullish and there are bullish macro catalysts and the crypto backdrop
is bullish and there are bullish crypto catalysts, then this is essentially the most bullish scenario
for the crypto market as it’s the most supportive of a rally continuing. And this is when prices can
go truly parabolic. But remember how much and how quickly leverage can impact crypto prices.
The longer that a crypto rally continues, the more that traders bet on higher highs, and
the more that long leverage builds up, eventually this long leverage gets big enough that even the
smallest dip can cause a big drop. And this makes it easy for crypto whales to trigger this drop to
make money shorting the long liquidations. Usually though, it’s a slightly bearish macro or crypto
catalyst that triggers the long liquidations like inflation coming in higher than expected or a
spot ETF application being delayed or denied. This pin can be enough to pop the bubble. And the
silver lining is that the resulting dip washes out all the leverage and resets both sentiment
and positioning, allowing the crypto market to eventually hit higher highs. Speaking of which,
it’s extremely important to keep in mind how crypto market structure is changing over time. The
more spot crypto ETFs get approved, the easier it is for macro liquidity to find its way into the
crypto market. In turn, the more that cryptos like Bitcoin and Ethereum rally, the more they’re used
as collateral in CFI and DeFi to borrow stable coins, a cryptonative liquidity that goes into the
market as well. And this begs a bigger question though, and that’s how to tell whether a crypto
rally is close to being over. After all, rallies don’t last forever, and nothing goes up only.
It’s a staircase of gradually higher lows and higher highs. Besides keeping track of the buildup
in long leverage and different liquidation levels, the answer is to keep track of all the indicators
we’ve discussed, be they macro or cryptoreated. If major stock indices like the S&P 500 and the
RAT are starting to chop or even grind lower, the chances are then that crypto won’t be far
behind. And if macro conditions start to turn bearish or if there is a bearish macro catalyst,
then chances are crypto will respond quickly. Aside from the long liquidations this will likely
trigger, capital tends to flee from risk assets first at the first sign of trouble, and that’s
crypto. Again, you can look at the 10-year Treasury yield and the Dixie to get a sense of how
interest rates and liquidity pictures are looking. If they’re both starting to rise, then this could
be a sign that macro conditions are about to start turning bearish. But I’ll reiterate that it can
take time for this to be reflected in the crypto markets. First, you will see weakness in stocks
and then in crypto absent long liquidations and bearish catalysts. Now, it’s a bit different when
you’re looking at the crypto indicators. That’s because BTC can chop or even grind lower while
everything else rallies. In fact, these tend to be the most bullish conditions for altcoins just
because if Bitcoin is flat, attention and capital tends to rotate into altcoins down the list.
Now, to clarify, I’m talking about the short term. On the longer term, Bitcoin still needs to
be in a clear uptrend. Logically, it’s a similar story for ETH and even ETH BTC. If ETH and ETH BTC
start chopping and grinding, other altcoins can still continue rallying as attention and capital
rotates further down the list. But again, this is in the short term. ETH and ETH BTC need to be in
the longer term uptrend for this to happen. If BTC ETH or ETH BTC start to drop though, expect to see
an immediate end to the rally. you’re watching. And that reminds me, another telltale sign that
a rally is close to being over is when bullish macro and bullish crypto catalysts are having zero
impact on price or even resulting in a sell-off. Now, to be clear, this tends to happen during bare
markets when both macro and crypto catalysts are bearish. If that’s the backdrop, then it’s normal.
If it happens when macro and crypto catalysts are bullish though, that’s a red flag. Crypto selling
off because of bullish macro or crypto catalysts when the backdrop is bullish is a clear sign that
the current rally is coming to an end and could be evidence that a crypto bare market could be
starting soon. And if crypto starts selling off on the back of a big bullish catalyst like a
spot ETF being approved or some institutional partnership then this could be a sign that the
local or cycle top is in. Now to wrap things up, I want to address one other topic that’s
top of mind when it comes to crypto rallies, and that’s the idea of rotation. Now, for context,
capital in the crypto market will rotate between cryptos and niches. For instance, it will start
with Bitcoin, then it will rotate into Ethereum, and then maybe into a niche on Ethereum like DeFi
or tokenized RWA cryptos, at least in theory. In practice, this rotation is a lot more nuanced.
For starters, many crypto whales will borrow against their crypto holdings to buy other cryptos
rather than rotate per se. And this means that a lot of rotation from say Bitcoin to Ethereum could
involve Bitcoin whales borrowing against their BTC to buy ETH rather than selling out of BTC into
ETH. And the same is true for Ethereum whales rotating into soul and so on and so on. At the
same time, this leveraged driven rotation tends to result in even more leverage. When Bitcoin whales
borrow against their BTC instead of selling it, this means there is less BTC available for
sale. And this means that supply is effectively restricted and that results in Bitcoin’s price
gradually going higher as new buyers come in. And the more that Bitcoin’s price rises, the more
that Bitcoin whales borrow against their Bitcoin. And this leverage only gets amplified as you go
further down the food chain. A Bitcoin whales rotate into ETH, causing ETH’s price to pump.
This causes Ethereum whales to borrow more against their ETH, further restricting ETH supply, making
it easier for price to rise as new buyers come in. The more that ETH’s price rises, the more that
Ethereum whales borrow against ETH to buy soul, and so on and so on. It’s a similar story when
it comes to rotation between niches. In case you haven’t noticed, everything in crypto involves
finance. Hence why we have DeFi, Social Fi, GameFi, and so on. What this means is that there’s
a common thread that unites all these different niches, and it’s usually DeFi, specifically
stable coins. If you think about it, all of these onchain use cases leverage stable coins
in some capacity. And this means that liquidity can move very freely between different crypto
niches resulting in a sort of rolling rotation rather than a sequential rotation. For instance,
there’s a rotation into AI agents because of some AI catalyst like GPT5. Then there’s a rotation
into GameFi because of some gaming catalyst like video games utilizing AI agents. And then there’s
a rotation back into DeFi because some new DeFi AI agent launches. The result is a sort of a rolling
rotation that looks almost like crypto is moving gradually higher so long as it belongs to one of
the niches that’s adjacent to whichever ones are most consistently in the spotlight. It’s easy
to forget that this is exactly what we saw in 2024 when AI and meme coins were all the rage.
Anyhow, the key takeaway is that you shouldn’t get too hung up on the idea of rotation as it’s
nowhere near as clear-cut as people make it sound. So long as you hold cryptos that belong to niches
that are likely to get big and have narrative that are easy for investors to understand and allocate
to, chances are that the rally will continue, assuming all the macro and crypto indicators
and catalysts are aligned. And if you need help finding these kinds of cryptos, then be sure to
check out our video on how to find 100x altcoins right over here. And if you’re not subscribed to
the channel yet, you can do that right over here. This is Nick signing off. Thank you guys very much
for watching and I will see you in the next vid.
