Bitcoin Market Euphoric, Faces Risk of Pullbacks and Leverage Washouts, Trading Firm Warns as BTC Price Nears $90K

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CoinDesk
2 days ago
  • BTC's breakout has the market in a state of euphoria, QCP Capital said.
  • Elevated perpetual funding rates and basis yields suggest potential leverage washouts ahead.

As bitcoin (BTC) prices approach the $90,000 mark, a sense of euphoria or extreme optimism seems to be sweeping through the market, warning of a potential price pullback ahead.

That's the latest analysis from Singapore-based crypto trading firm QCP Capital.

"With BTC's break of key resistance and it's multi-month range, the market is certainly in a state of euphoria. Perp funding is very elevated and basis yields are at seven-month highs," QCP Capital said in a Telegram broadcast.

"While we remain structurally bullish, we are cautious of any pullbacks, especially from leveraged washouts," the trading firm added.

The open interest-weighted funding rates in perpetuals or futures with no expiry have surged to 0.056%, the highest since at least March, according to Coinglass.

It's a sign that bullish long positions are likely getting crowded, and a slight price pullback could see over leveraged bulls capitulate, closing their longs and inadvertently exacerbating downside pressures in the market. Leverage washouts have been a common phenomenon in previous bull markets, often leading to a sudden double-digit percentage price drops.

An elevated funding rate means perpetual futures are trading at a premium to the spot price. Standard futures contracts are also trading at an annualized premium (basis) of over 15% across all exchanges, including the CME.

The premium represents the return available on the market-neutral cash and carry arbitrage strategy that involves buying the asset in the spot market while simultaneously selling a futures contract.

Per QCP Capital, historically such sharp spikes in the so-called basis yields have not lasted very long.

BTC changed hands at $88,300 at press time, representing a nearly 30% gain in seven days, according to CoinDesk data. Prices hit a high of $89,622 during the overnight trade.

The price surge since Donald Trump's victory in the U.S. election held on Nov. 5 has sparked a strong belief among traders that this upward trend will continue unabated. The optimism is reflected in the reactions on social media platform X whenever a potential resistance zone for BTC is mentioned!

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Disclaimer: The content above is only the author's opinion which does not represent any position of Followin, and is not intended as, and shall not be understood or construed as, investment advice from Followin.
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