As Bitcoin’s meteoric rise continues, with the price now tantalizingly close to the $90,000 mark, the cryptocurrency market is awash in a sea of euphoria. However, amidst the jubilation, one prominent trading firm is sounding the alarm about the potential for leverage washouts and withdrawals that could dampen the celebratory mood.
Market Sentiment Reaches Fever Pitch
The recent surge in Bitcoin’s price, which has seen it gain nearly 30% in just seven days, has sent the market into a state of euphoria, according to Singapore-based trading firm QCP Capital. In a Telegram broadcast, the company noted that the breakthrough of key resistance levels and the multi-month range has contributed to this heightened sense of optimism among traders.
The bullish sentiment is evident in the reactions on social media platform X, where any mention of potential resistance zones for BTC is met with a strong conviction that the uptrend will continue unabated. This unwavering belief in Bitcoin’s upward trajectory has been further bolstered by Donald Trump’s victory in the U.S. elections held on November 5th.
Elevated Funding Rates and Futures Premiums
Despite the prevailing euphoria, QCP Capital has pointed out some concerning signs in the market. The firm noted that perpetual funding rates and futures basis yields are at extremely high levels, which could potentially lead to leverage washouts.
According to data from Coinglass, interest-weighted funding rates on perpetual swaps or futures without expiration have climbed to 0.056%, the highest level since at least March. This indicates that bullish long positions are likely becoming crowded, and even a slight dip in prices could see leveraged bulls capitulate, inadvertently exacerbating downward pressure on the market.
“Although we remain structurally bullish, we are wary of any washouts, especially coming from leverage unwinds,” QCP Capital cautioned in their Telegram broadcast.
Moreover, standard futures contracts are trading at an annualized premium (basis) of over 15% across all exchanges, including CME. This premium represents the yield available on the market-neutral cash and carry arbitrage strategy, which involves buying the asset in the spot market and simultaneously selling a futures contract.
QCP Capital noted that historically, such sharp spikes in basis yields have not lasted very long, suggesting that a correction may be on the horizon.
The Specter of Leverage Washouts
Leverage washouts, a phenomenon common in previous bull markets, often lead to sudden double-digit percentage drops in prices. These events occur when leveraged long positions are forcibly liquidated due to a slight decrease in prices, creating a cascading effect that further drives down the market.
The current high funding rates and futures premiums suggest that the market is ripe for such a scenario. If a leverage washout were to occur, it could temporarily dampen the euphoric sentiment and lead to a significant correction in Bitcoin’s price.
Proceeding with Caution
While QCP Capital remains bullish on Bitcoin in the long term, the firm has advised caution in the short term, given the potential risks posed by the highly leveraged market. Traders and investors alike should be aware of the possibility of sudden price drops and plan their strategies accordingly.
As Bitcoin continues to flirt with the $90,000 milestone, it is essential to keep a level head and not get carried away by the prevailing euphoria. By staying informed about market dynamics and potential risks, participants can navigate the volatile cryptocurrency landscape with greater confidence and resilience.
Proceeding with Caution
While QCP Capital remains bullish on Bitcoin in the long term, the firm has advised caution in the short term, given the potential risks posed by the highly leveraged market. Traders and investors alike should be aware of the possibility of sudden price drops and plan their strategies accordingly.
As Bitcoin continues to flirt with the $90,000 milestone, it is essential to keep a level head and not get carried away by the prevailing euphoria. By staying informed about market dynamics and potential risks, participants can navigate the volatile cryptocurrency landscape with greater confidence and resilience.
