In the past 24 hours, cryptocurrency futures positions worth approximately $ 500 million have been liquidated. The bulk liquidation of positions occurred before the price of Bitcoin (BTC) fell below $ 34,000 on Jan. 17.
Bitcoin total liquidations. Source: Bybt.com
Why were so many positions liquidated?
Overnight, the price of Bitcoin rose 6.7% from $ 35,500 to almost $ 38,000. Meanwhile, the futures funding rate rose sharply, indicating an overfunded market.
The refinancing rate of the Bitcoin perpetual swap futures contract rose to around 0.07% on all major exchanges.
Given that the average funding rate is typically around 0.01%, the futures market was crowded on the way to $ 38,000.
As such, Bitcoin price began to fall when several large sell orders hit the market for just over $ 38,000. The overheated futures market intensified the correction.
Overall, liquidations of $ 500 million are not a large number compared to last week when Bitcoin liquidated futures contracts totaling $ 1 billion on dates.
Is the Bitcoin Floor Nearby?
However, the decline has not resulted in the futures market’s overt interest diminishing, raising concerns about a major pullback. There are still a large number of traders betting on Bitcoin in the futures market, which opens up the possibility of another long squeeze.
A pseudonymous trader called “Salsa Tekila” said that if Bitcoin fell below $ 30,000, it would enter “bear market territory”. Hence, it is critical for BTC to maintain $ 30,000 as a macro support area in the short term. He said:
“If we get below 30,000, that’s bear market area. We’d have enough underwater bag holders to hold us down for a long time. Until then, I could go either way. If you reclaim and hold more than 40,000, I think 50-60,000 environment is plausible. I think outperforming $ BTC is a trend, not a trade. “
According to Ki Young Ju, CEO of CryptoQuant, the open interest in the futures market is still skyrocketing. Meanwhile, signals in the chain that indicated buyer demand have stagnated for the past few days.
Due to the combination of the crowded derivatives market and the lack of buy signals, Ki wrote that the market was uncertain and that it may retest $ 30,000. He wrote:
“People are trading BTC in US dollars with low leverage, the open interest is skyrocketing and the long-short ratio looks neutral. Strong buy signals in the chain that drove this bull market have not appeared so far. $ BTC could retest 30,000 so I currently have no position in this uncertain market. “Bitcoin valued leverage on exchanges. Source: CryptoQuant
As Cointelegraph previously reported, traders at Binance, the largest futures exchange by open position, began using lower leverage last week. This is an indication of an increased level of fear in the market and the lack of certainty about the short-term price movement of BTC.
On the flip side, some traders remain bullish over the medium term, stating that the current $ 40,000 retreat was not only expected but was badly needed so that the rally would not overheat.