Since December 28, Bitcoin has faced significant challenges in maintaining its status above the $95,000 threshold, resulting in a marked decline in the demand for leveraged trading.
During this period, bullish traders experienced liquidations totaling around $470 million, while the appetite for bearish positions dwindled, especially as Bitcoin hovered around the critical $92,000 level.
Market Overview
The fall in open interest— a measure of the total outstanding contracts in Bitcoin (BTC) futures markets— has dropped to its lowest figure in two months.
While bearish traders may seem to have a temporary edge, their decreasing interest suggests limited potential for further significant drops in Bitcoin’s price.
On December 20, 2024, Bitcoin futures open interest peaked at 668,100 BTC.
Since then, however, this number has shrunk by 11%, currently sitting at 595,700 BTC— the lowest seen since November 4, 2024.
Yet, this reduction doesn’t necessarily equate to a setback for bullish investors.
Sentiment Indicators
In the world of cryptocurrency, both bullish and bearish sentiments are ever-present.
The futures premium serves as an essential indicator of which side shows greater leverage demand.
Typically, monthly contracts sport an annualized premium in the range of 5% to 10%.
When this premium exceeds that threshold, it usually signals increased bullish sentiment.
On December 28, the one-month Bitcoin futures premium approached neutral territory at 9.5% but quickly rebounded to surpass 10%.
Presently, this premium is at 15%, its highest since December 20, 2024, indicating that bullish investors still harbor confidence in potential market rebounds despite the recent volatility.
Future Implications
Recent comments from U.S. Treasury Secretary Janet Yellen added a spark of optimism for Bitcoin supporters.
On December 27, she warned congressional leaders that the federal government could hit its debt ceiling as early as January 14 unless intervention from Congress or the Treasury occurs.
Complicating matters, House Speaker Mike Johnson suggested a potential increase of $1.5 trillion to the debt limit, which would necessitate cuts of $2.5 trillion in “net mandatory spending.” Such cuts typically exert downward pressure on stock markets, prompting traders to tread cautiously.
One major hurdle for incoming president Donald Trump lies in a faction of hard-line Republicans, who have persistently opposed any hikes to the debt limit.
This group comprises at least two dozen House Republicans, adding uncertainty to future negotiations.
For Bitcoin investors, this impending fiscal showdown presents both risks and opportunities.
While short-term uncertainties may temper some investors’ risk appetite, analysts believe that the existence of $105 billion in Bitcoin exchange-traded funds (ETFs) has solidified Bitcoin’s position as an appealing alternative asset for hedging.
Additionally, perpetual futures contracts function as a gauge of retail traders’ risk tolerance.
Exchanges adjust funding rates based on the demand imbalance for leverage.
In a well-balanced market, long positions generally incur a monthly fee ranging from 0.4% to 1.8%; rates above this range indicate heightened bullish enthusiasm.
Currently, the monthly funding rate is at 1.3%, marking the highest level in over two weeks.
Even so, it remains comfortably within the neutral territory.
This trend indicates a positive shift in Bitcoin derivatives, even as open interest continues to decline.
Consequently, the hesitance among Bitcoin bears to establish new positions below $95,000 fosters a cautiously optimistic outlook for the cryptocurrency’s price trajectory.
Source: Cointelegraph
