Buyers beware as BTC, LayerZero, Stellar (XLM), Litecoin prices rebound

Cryptocurrency prices bounced back on Saturday as investors rushed to buy the dip. Bitcoin (BTC) led these gains after it bounced back to $58,000 from its weekly low of $53,530. Other top-performers were tokens like LayerZero (ZRO), Stellar Lumens (XLM), and Litecoin (LTC), which rose by double-digits from their lowest level this week.

Why Bitcoin and altcoins are recovering

There are three main reasons why Bitcoin and other altcoins are bouncing back. First, there are rising odds that the Federal Reserve will start cutting interest rates earlier than expected after Friday’s jobs numbers. 

The data revealed that the economy created 206k jobs in June, beating the estimated 190k. While this was a solid report, other numbers pointed to the softening of the American economy as the unemployment rate rose to 4.1% and wage growth slowed. 

Two separate reports by the ISM showed that the economy was slowing. The manufacturing PMI dropped to 48.5 in June while the non-manufacturing PMI dropped to 48.8, meaning that the two were in a contraction zone. 

Therefore, some analysts believe that the Fed will deliver its first rate cut in its September meeting. Still, there is a risk that inflation will remain steady for longer, which could push the Fed to maintain rates higher for longer. Bitcoin and other altcoins do well when there is hope that the Fed will cut rates.

Second, the tokens rebounded after Joe Biden’s interview with George Stephanopoulus, in which he confirmed that he would stay in the race. Most experts believe that Trump will win if Biden remains in the race. Trump is seen favourably by crypto investors since he has supported the industry.

Third, these tokens have risen as investors buy the dip. In most cases, investors and traders are always quick to buy the dip when an asset crashes hard in a short period. This rebound is happening after Bitcoin formed a hammer pattern, as shown in the chart below.

Dead cat bounce risks

Bitcoin price chart

Still, despite these gains, there are reasons to be careful. First, this rebound could be part of a dead cat bounce. This is a situation where assets in a freefall bounce back briefly and then resume the downward trend. 

Bitcoin has shown some dead cat bounces several times this year. For example, in June, the coin tumbled to $58,437 and then quickly rebounded to over $62,000. These gains were short-lived and the coin resumed the downward trend. 

Second, technicals are not supportive of a sustained Bitcoin and altcoins rally. The chart above shows that Bitcoin formed a giant double-top chart pattern at around $72,000. In most cases, this is one of the most bearish patterns in the market. 

By measuring the distance between the head and the neckline, we can estimate that Bitcoin will drop to about $44,500.

Bitcoin has now retested the double-top’s neckline. A break and retest is one of the most popular continuation signs in the market. Worse, the coin remains below the 200-day Exponential Moving Average (EMA).

Therefore, there is a likelihood that Bitcoin will resume the downward trend in the next few days. If this happens, other altcoins like Litecoin, LayerZero, Stellar Lumens, and Chainlink will drop as well. The same will happen among other altcoins like Pepe, Internet Computer, and Hedera Hashgraph.

Besides, there are some fundamental challenges as well. Data shows that Bitcoin balances in exchanges has continued to rise because of Bitcoin miners capitulation, sell-off by the German and US governments, and signs that Mt.Gox wallets are moving coins to exchanges.

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