Key Points
- Bitcoin’s leverage ratio and Open Interest could be impeding its progress, with a potential fall to $56k.
- The derivatives market may be overheated, with increased risks from leverage trading.
Bitcoin (BTC) has recently slipped below the 200-day simple moving average, trading between the $60k-$60.5k support zone.
However, there is a significant possibility of a further drop to $56k or even lower.
Market Sentiment and Potential Bottom
According to CoinMarketCap, the Crypto Fear and Greed index stands at 48, indicating a bearish market sentiment.
Traders might be lured into margin trading to recoup losses, a strategy that could lead to significant losses.
Crypto analyst Axel Adler suggests that the bottom may be near, based on the historical price crashes since May 2023 that have seen drawdowns from 17% to 23%.
The current figure stands at 16.4%, suggesting that the bottom might be close.
The Role of the Derivatives Market
The $70k level, near the all-time high for Bitcoin, has not been convincingly surpassed since March.
During this period, the Open Interest has remained in the $30 billion to $35 billion range.
The past week saw a decrease by $4 billion, reflecting a bearish short-term sentiment.
A successful bull run requires high spot demand and when the futures market becomes too heated, price volatility can reset the upward trajectory.
The estimated leverage ratio has been on the rise since June, indicating that investors are taking more risks with leverage trading, possibly in anticipation of a bullish breakout.
This could negatively impact the chances of a breakout as the price is drawn to the long liquidations levels to the south.
An earlier report noted that the long-term holder selling pressure has decreased in recent weeks.
This suggests that the $60k might be the local bottom, but a deeper retracement due to macro events and market-wide panic cannot be ruled out.
