As the crypto market rallies today, beware of a dead-cat bounce

The crypto market is rallying today, Oct. 13, as investors buy the recent dip and optimism surrounding U.S.-China trade relations rises.

Bitcoin (BTC) price jumped to $116,000, up by 8.35% from its lowest point last week. Ripple (XRP) jumped to $2.6 , up by 90% from last week’s low of $1.37. 

The total market capitalization of all cryptocurrencies jumped to $3.87 trillion, with coins like Synthetix, Bittensor, Render, and Story among the top gainers.

Crypto market rallies amid China-US trade deal optimism

The crypto market rally coincided with gains in American equities, as futures tied to the Dow Jones, Nasdaq 100, and S&P 500 jumped more than 1%.

This rally is a bet that the trade war between the United States and China will be avoided. China has already warned that it will use its rare earth metals as leverage and threatened of retaliatory tariffs. 

In a Truth Social post, U.S. President Donald Trump argued investors shouldn’t worry about China, downplaying any tensions. As such, there are signs that the two sides will de-escalate ahead of the Trump–Xi Jinping meeting later this month.

The crypto market is also rallying as investors buy the dip following the recent crash. It is common for investors to buy the dip whenever Bitcoin and other assets plunge.

Most importantly, there is optimism that the Federal Reserve will cut interest rates later this month. If this happens, it will be the second consecutive cut after the one made in September.

Such a move would be highly bullish for the stock and crypto markets, as these risk assets tend to thrive in periods of easier monetary policy.

Cryptocurrencies’ rebound could be a dead-cat bounce

Still, the main risk in the crypto market is that the ongoing rally could be a dead-cat bounce or a bull trap. A DCB is a situation where an asset in a steep sell-off bounces back temporarily and then resumes its downward momentum.

Odds that this could be a DCB have jumped as concerns about the amount of leverage in the crypto industry remain. In a statement to CNBC, Tom Lee, the head of FundStrat and BitMine, warned that while the reported liquidation figure on Friday was $19 billion, the real number was at least four times that. 

Another potential risk is that geopolitical tensions may last longer than expected, leading to higher inflation. As a result, the Fed may struggle to cut rates as inflation rises.