Bitcoin is currently undergoing a process of reducing leverage, as shown by the 90-day Aggregated Open Interest Delta on 17 major exchanges.
This pattern is typically followed by price declines or prolonged periods of sideways movement in reaction to positions being closed or liquidated.
Of particular note is the increase in the Open Interest to Market Cap ratio since early 2024, indicating higher market risk for Bitcoin compared to the more stable conditions during the 2021 Bull Run.
Recent developments point to significant reduction in leverage, hinting at a wave of liquidations and the unwinding of institutional positions—a scenario akin to a reset in liquidity.
This heightened ratio could heighten the risk of further price declines, impacting investors who are holding long positions.
Evaluating Liquidity Zones and Trader Sentiment Gap
Further analysis has highlighted substantial liquidity concentration around $93,700 and $98,800. Following recent news, Bitcoin saw a brief recovery before a subsequent downturn.
The initial drop may target the $93,700 level to absorb available buy orders and liquidity in that range.
If Bitcoin manages to hold above $93.7K, it could indicate strong support or positive sentiment among buyers at higher levels, potentially averting a more significant drop. This situation might pave the way for a quicker rebound or even a surge in prices.
Moreover, the Trader Sentiment Gap for Bitcoin displayed a noticeable decrease to a lower threshold, particularly evident when filtered at 0.5, signaling minimal difference in sentiment between top traders and retail traders.
Historically, such a contraction often precedes substantial price movements. For instance, on February 12, after a decline in the gap, Bitcoin’s price sharply fell from $96,650 to a low of $94,000 before bouncing back.
This trend suggests that a narrow sentiment gap could lead to initial price drops followed by a recovery, reflecting changes in trader sentiment and market conditions.
This further reinforces the expected decline indicated by the leverage reduction signal.
Given the current narrow sentiment gap, Bitcoin may experience short-term volatility, potentially accompanied by a downside movement followed by an upward correction.
The Significance of Accumulating around $100,000 for Bitcoin
Nonetheless, a notable trend has emerged wherein Short-Term Holders (STHs) now hold 4 million Bitcoin, representing 46% of the peak in 2017 and 86% of the peak in 2021, having accumulated 1.6 million BTC since September.
The growing number of Short-Term Holders (STHs) contrasts with the decreasing distribution from Long-Term Holders (LTHs) as evidenced by their diminishing share of the total Bitcoin supply.
This indicates that Bitcoin continues to accumulate in the price range of $90,000 to $100,000.
This consolidation suggests exhaustion among sellers, establishing a solid foundation for a potential continuation of the upward trend.
With Bitcoin stabilizing, the market could become more confident, reducing the chances of sudden sell-offs and setting the stage for a sustained upward trajectory once the deleveraging process concludes.