As Bitcoin’s price rockets towards the monumental $90,000 milestone, the cryptocurrency market appears to be in the throes of euphoria—an extreme sense of optimism and collective belief that the uptrend will continue indefinitely. However, this unbridled exuberance is raising red flags for Singapore-based crypto trading firm QCP Capital, which warns of potential price pullbacks on the horizon.
Leverage and Futures Premiums Reach Alarming Levels
In a recent Telegram broadcast, QCP Capital noted that the breakthrough of Bitcoin’s key resistance level and multi-month range has undoubtedly pushed the market into a state of euphoria. This sentiment is evident in the significantly heightened perpetual funding rates and basis yields, which have hit seven-month highs.
Funding rates for perpetual swaps, or futures contracts with no expiry date, have surged to 0.056% when weighted by open interest, according to data from Coinglass. This is the highest level seen since at least March, indicating that bullish long positions are likely overextended.
“While we maintain our structurally bullish stance, we are wary of any pullbacks, especially from a deleveraging dip,” QCP Capital cautioned in their message.
The Dangers of Overleveraged Bulls
The elevated funding rates suggest that a minor price dip could trigger a capitulation among overleveraged bulls, who may be forced to close their long positions. This unintentional action could exacerbate the downward pressure on the market, leading to a more significant pullback than initially anticipated.
Such deleveraging events have been commonplace in previous bull markets, often resulting in sudden double-digit percentage price drops. As the saying goes, “the market takes the stairs up and the elevator down.”
Futures Premiums and the Cash and Carry Arbitrage
The heightened funding rates indicate that perpetual futures are trading at a premium to the spot price. Standard futures contracts are also trading with an annualized premium (basis) of over 15% across all exchanges, including CME.
This premium represents the yield available through the market-neutral Cash and Carry arbitrage strategy, which involves buying the asset on the spot market while simultaneously selling a futures contract. However, QCP Capital notes that historically, such sharp spikes in the so-called basis yield have not lasted long.
Bitcoin’s Meteoric Rise Continues
Despite the cautionary tale from QCP Capital, Bitcoin’s price continues to soar, changing hands at $88,300 at the time of writing. This represents a nearly 30% gain over the past seven days, according to data from CoinDesk. During overnight trading, prices peaked at $89,622.
As the crypto community watches in awe, many are left wondering: will Bitcoin’s euphoric rise continue unabated, or is a sharp correction lurking just around the corner? Only time will tell, but one thing is certain—the market’s collective breath is held in anticipation of what comes next.
