- Bitcoin bulls entering long positions en-masse against falling prices
- Open interest in Bitcoin futures trades rising rapidly, with a positive funding rate
- Possibilities of a long squeeze rising
JAIPUR (Coinchapter.com) – Analysts predicted a long squeeze scenario for Bitcoin amid a significant rise in open leveraged long positions in BTC/USD futures markets.
Long squeezes are bearish events where sudden drops in asset prices incite massive selloffs amongst long-term holders. As a result, investors close their long positions out of liquidation fears. The same in turn forces retailers with relatively shorter holding sizes to dump.
Related: Bitcoin miners want to sell BTC for way above $50K, new analysis shows
A combination of positive funding rates and rising open interest provided the impetus for a long squeeze set up in Bitcoin markets, according to CryptoQuant resident analyst “maartunn.”
“Currently, Open Interest is growing rapidly, and funding is positive. This suggests that bulls are opening leveraged long positions while the price is dumping. This will give pressure on this long, especially if they are underwater.
said maartunn
Bull Trap
Rising open interest figures from $3.5 billion during May-June 2021 to $6.5 billion to date hinted at the rising bullish sentiment in Bitcoin futures markets. Plus, the funding rate posted an uptick from around -0.025 in July and maintained a steady uptrend towards 0.025 in August, which further fuelled buy/long positions.
Open interest denotes the total value of outstanding contracts in futures markets. For the benchmark cryptocurrency, futures markets exist on a plethora of cryptocurrency exchanges.
Due to the differences between perpetual contracts and spot prices, funding rates are payments that short or long traders pay to one another. For instance, a positive rate means shorts are paying longs, and a negative one means an inverse scenario.
Maartunn indicated that the rising trend in open interest and funding rates implies a rallying positioning for Bitcoin futures markets but could backfire in the face of dropping BTC/USD exchange rates.
Long-term investors would continue to ‘go underwater’ with their leveraged positions risking liquidation against falling markets. The resulting long liquidations would create oversold conditions, making way for fresh liquidity injection.
“…futures markets remained net-long on rising open interest throughout this run-up so far – perhaps we need a few long liquidations before #bitcoin can make its next leg up…?”
noted Dilution-proof
However, the native CryptoQuant analyst pointed out that this is nothing less than a warning sign for the near term. But diminishing relative strength index (RSI) readings against rising prices raised bearish concerns.
Bitcoin Technical Setup
The BTC/USD pair dropped 7% to $46,109 on Thursday to test the bottom trendline of the Ascending Channel pattern, which dictated the pair’s trend since July 21. Buyers emerged to plug the selloff and pull prices up to $47,681, but the trend remained bearish.
RSI printed a downtrend since July 30. A similar scenario occurred during Bitcoin’s ascent from $42,000 to $65,000 from January to April this year. BTC/USD eventually crashed on May 19 after failing to hold firm at $59,400. The current Bitcoin spot market condition is a reminder of the same and calls for a correction.
Related: Elon Musk Caused Bitcoin Dump, But Hawkish Fed Minutes Could Accelerate It
Fibonacci plots show that prices could fall to $43,180 (around the 50-day moving average wave) if bears refuse to budge. Bulls would need to push Bitcoin to close above $50,500 and reclaim $51,500 for the rally to continue.
