In recent weeks, we have identified that BTC's Open Interest (amount of leverage in the system) has increased from $11.5b in mid-October to $20.2b in early/mid-December.
This is a build-up of excess leverage, and for markets to remain healthy, this excess leverage will need to be flushed out at certain points.
This was also clear from the Funding Rates increasing substantially.
When a market becomes too confident on further upside, retail tends to ape into Longs, driving the Funding Rate to excessively high levels.
The positions are usually highly leveraged, meaning the liquidation levels are tight/close, and a small move down in price could begin hitting these liquidation levels, driving the price even lower.
Technical analysis
- BTC has rejected at the $44k, which will now become a key horizontal level for price to overcome.
- The main uptrend is still intact, which means the bullish structure is intact; therefore, momentum can continue in the short term.
- Price was able to bounce in the early hours of this morning from the horizontal support of the mid $40k's.
- Likely, we see price remain rangebound between $42,000 and $43,600 in the short-term.
Cryptonary's take
A leverage flush-out was certainly needed. This will be flushing out the excess built-up over the past few weeks. We now expect price to remain range-bound between $42,000 and $43,600.A breakdown to the $38,000 to $39,000 level is still possible, and we would add light DCA orders for BTC there.
However, even though the price may remain afloat at decent levels up to the ETF decision dates, it's possible that following that price has a more substantial pullback.
This could be a test of $36k to $38k. If that area is reached, we would be aggressive buyers of BTC.
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