The crypto market rally resumed today, Jan. 2, as investors bought the recent dip. Bitcoin price rose to over $88,500, while Ethereum jumped by $3,000. The market capitalization of all tokens jumped by 1.35% to over $3 trillion.

Most altcoins were in the green, with Story (IP) rising by 30%. Pepe token jumped by 25%, while Aerodrome Finance (AERO), Immutable (IMX), Filecoin (FIL), Maple Finance (SYRUP), and Render (RNDR) soared by over 10%.

Crypto market rally today | Source: CMC

Crypto market rally rose as investors bought the dip

One potential reason why the crypto market rally is happening is that investors are buying the dip. Bitcoin remains 30% below its highest point in 2025, while Ethereum has plunged by 40%. Other top tokens have also dipped by double digits from last year’s high. It is common for investors to buy the dip after an asset crashes by double digits. 

The rebound is also happening as investors anticipate the so-called January Effect. The January Effect is a phenomenon where financial assets rise in January as investors start to buy after selling in December as part of tax-loss harvesting.

Rising futures open interest

The crypto rally is also happening as the futures open interest start rising. Data compiled by CoinGlass shows that the interest has jumped by 2.16% in the last 24 hours to $130 billion. Rising open interest is a sign that investors are deploying leverage, which is a bullish sign.

Still, the interest remains much lower than last year’s high of over $255 billion. It has remained under pressure since the large liquidation event that happened on October 10, when over 1.6 million traders were wiped out. 

The rising futures open interest is happening as liquidations ease. Data compiled by CoinGlass shows that the 24-hour liquidation dropped by 40% to $141 million. 102,114 traders were liquidated in this period, with Bitcoin shorts worth $23.5 million being wiped out.

Potential risk-on sentiment ahead of Fed cuts and IPOs

The crypto market rally is also happening as investors embrace a risk-on sentiment as the year starts. Indeed, data shows that global stocks started the year well, with the Hang Seng Index rising by 2.70%, while the Sensex Index soared by 30 basis points. Futures tied to the Nasdaq 100 and S&P 500 indices were also in the green. 

Market participants are bracing for a strong year, with most Wall Street analysts predicting that the S&P 500 Index will jump to $7,500 and above this year. 

The potential catalysts for the markets are Federal Reserve interest rate cuts, IPOs, including Anthropic, SpaceX, and Kunluxin, and strong earnings. Therefore, this optimism is helping to boost the crypto market.

Potential dead cat bounce or bull trap

Still, the main risk is that the ongoing rally of Bitcoin and altcoins could be a dead-cat bounce. Besides, the holiday mood is continuing, with the 24-hour volume plunging by 25% to $64 billion. In normal times, the volume in the crypto market is usually over $100 billion.

A dead-cat bounce is a situation where assets like stocks and cryptocurrencies rebound briefly and then resume the downward trend as the momentum fades. 

The odds of a bull trap are elevated because past attempts to rebound have faced substantial resistance, with large companies like Wintermute and Binance selling. 

Also, Bitcoin and other altcoins have formed a bearish pennant pattern and remain below all moving averages, pointing to further declines. 

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