Why Is Alpaca Finance Coin Falling Despite Massive 600% Rally?

Alpaca Finance Coin News: Binance Delisting Sparks Pump and Dump

On April 24, with the announcement of delisting from Binance, Alpaca Finance (ALPACA) was not expected to change its price; however, the price went on to rally over 600% in a matter of days, taking retail short sellers off guard. Instead of crashing, the token experienced a massive short squeeze aided by the strategic alteration of futures funding rate settlement terms. But what caused this most unexpected price rally, and is there more potential for an upswing? 

Let’s take a look at the main catalysts, the chart patterns, and the short-term price forecasts for the ALPACA token.

Binance Delisting Announcement Sparks ALPACA Rally

On April 24, Binance—the largest cryptocurrency exchange—announced the delisting of the ALPACA token, usually a bearish signal; however, rather than falling, the token gained momentum and shot up from $0.18 to $1.27, making a whopping increase of 600% in just a few hours. 

Such a rally was, therefore, not random, as it coincided with yet another change from Binance, which concerned the frequency of funding rate settlement for ALPACA futures contracts. Binance stated that settlement of funding would henceforth be every two hours with a cap of +2% or -2%, a change that had an immediate impact on the marketplace.

Funding Rate Dynamics Trap Short Sellers

At the update time, the funding rate for ALPACA was negative, indicating that short sellers were rewarded for holding their positions. This attracted many retail traders who were betting against the token. However, due to this increase in settlement frequency, funding payouts reached a point where such incentives to take a position became unsustainable. 

Shortly after, buyers came in thick and heavy; prices were pushed higher, and all the leveraged shorts were liquidated. As the cascade of liquidations began, ALPACA launched into a parabolic rally, marking the first phase of the pump.

Sounded familiar? History seems to repeat itself for DeFi tokens with low market caps, whereby manipulation of funding rates and sudden influxes in volume create a conducive environment for short squeezes.

Second Rally Triggered by April 29 Funding Cap Update

Just a few days after, Binance changed the funding-rate cap again, this time from ±2% to ±4%. This time, it increased the risk for short sellers and made holding positions even more costly.

The second major catalyst was again at play, igniting yet another strong price spike and increased volatility in the marketplace. Technical momentum combined with a reversal in sentiment provided further support for the bullish case, at least in the very interim.

Technical Analysis: What the Charts Reveal

Explosive Rally, Then Steep Correction

The one-hour chart has plotted a classic "pump and dump" pattern. The altcoin exploded to $1.27 before undergoing a 58% correction, dropping to $0.46. Since then, the token has garnered support and is currently stabilizing around $0.53.

Key Technical Indicators

• RSI (Relative Strength Index): Presently, it is around 50; thus, it is indicative of the neutrality of the market.

• Support Zone: Strong demand between the levels of $0.46-$0.50.

• Resistance Levels: Note for breakout points above $0.75-$0.85 to carry on the pattern's continuation.
  

Now, if bulls recapture the declining trendline, then we might see a new leg on the upside. Otherwise, it will push it back down to the ground again towards $0.40 or even lower if it fails to hold the support zone.

Sources- TradingView

What’s Next for Alpaca Finance?

Whereas delisting by Binance looks like a burying ground for lots of projects, the recent rally has shown that DeFi markets work differently, especially in times where funding mechanisms and general sentiment coalesce. 

However, the long-term fundamentals are still in doubt. There are no major centralised exchange listings or updates in the roadmap; hence, this price action can be taken as speculative. 

However, the altcoin tends to be an interesting high-volatility trade for traders in the short term, especially so if the $0.50 support holds.