Approximately $ 500 million in future cryptocurrency positions have been settled in the past 24 hours. The mass liquidation of positions took place before the Bitcoin (BTC) price fell below $ 34,000 on January 17.
Why were so many positions liquidated?
Overnight, Bitcoin’s price increased 6.7% from $ 35,500 to almost $ 38,000. Meanwhile, the rate of financing for futures increased sharply, indicating an over-leveraged market.
On major exchanges, the financing rate for the Bitcoin perpetual swap futures contract rose to around 0.07%.
Considering that the average financing rate normally fluctuates around 0.01%, the futures market was overcrowded on the way to $ 38,000.
As such, Bitcoin’s price started to drop when several large sales orders hit the market just over $ 38,000. The overheated futures market further intensified the correction.
Overall, $ 500 million in settlement is not a large number compared to last week, for example, when Bitcoin saw $ 1 billion in futures contracts settled on peak days.
Is the Bitcoin fund close?
But the decline did not cause the number of open futures contracts to decrease, causing concerns about a further retraction. 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 trader with a pseudonym known as “Salsa Tekila” said that if Bitcoin falls below $ 30,000, it will enter “bear market territory”. Therefore, in the short term, it is crucial for BTC to maintain $ 30,000 as a macro support area. He said:
“If we are below 30k, it’s a bear market. We would have enough underwater racks to keep us on the ground for a long time. Until then, I could go anyway, I think. If you recover and hold above 40k, I think the 50-60k neighborhood is plausible. To think that $ BTC is over is a bias, not a negotiation. “
In addition, according to CryptoQuant CEO Ki Young Ju, the number of open interest contracts in the futures market is still skyrocketing. Meanwhile, the network’s signals indicating buyer demand has stagnated in recent days.
Based on the combination of the overcrowded derivatives market and the lack of buying signals, Ki wrote that the market is uncertain and could test $ 30,000 again. He I wrote:
“People trade $ BTC with low leverage, open interest is skyrocketing and the buy-sell ratio looks neutral. The strong buying signals on the network that drove this bull market have not emerged until now. $ BTC can retest 30k, so I have no position now in this uncertain market. “
As Cointelegraph previously reported, traders at Binance, the largest open futures exchange, started using lower leverage last week. This is indicative of a high level of fear in the market and the lack of certainty in BTC’s short-term price trend.
On the other hand, some traders remain optimistic in the medium term, explaining that the current retraction of the $ 40,000 levels was not only expected, but also very necessary for the rise not to overheat.