Bitcoin struggles to maintain prices above $95,000 since December 28, with a decline in demand for leveraged positions. During this time, bulls faced $470 million in liquidations, while bears showed reduced appetite, particularly when Bitcoin tested levels below $92,000.
Measured by its open interest, which is the total number of contracts across all Bitcoin futures markets, positions have dropped to their lowest level in two months. Although bears have gained the upper hand in the short term, their diminished appetite suggests limited downside potential for Bitcoin’s price.
Bitcoin futures open interest reached its peak at BTC 668,100 on December 20, 2024, but 11% of those positions have since been closed. The current level of BTC 595,700 is the lowest since November 4, although this doesn’t necessarily indicate a defeat for the bulls.
The futures premium, which indicates which side is demanding more leverage, provides a clearer picture of the market sentiment. Typically, monthly contracts show a 5% to 10% annualized premium, and premiums above that range indicate stronger bullish sentiment.
On December 28, the 1-month BTC futures premium briefly approached neutral levels at 9.5%, but quickly rebounded above the 10% threshold. The premium currently stands at 15%, the highest since December 20, 2024, signaling continued conviction from bulls despite recent Bitcoin price weakness.
Remarks from United States Treasury Secretary Janet Yellen provided optimism for Bitcoin buyers. On December 27, 2024, Yellen wrote to congressional leaders, warning that the federal government could hit its debt limit as early as January 14 unless action is taken.
House Speaker Mike Johnson’s statement that a $1.5 trillion debt limit increase through reconciliation would only be possible with $2.5 trillion in “net mandatory spending” cuts further complicates the situation. Reduced government spending typically has a negative impact on the stock market, leading traders to adopt a more risk-averse stance.
The potential fiscal standoff presents both bullish and bearish implications for Bitcoin investors. Short-term uncertainty may reduce investors’ risk appetite, but analysts suggest that the $105 billion in Bitcoin exchange-traded funds (ETFs) has established the cryptocurrency as an alternative hedge.
Perpetual futures contracts also serve as an indicator of retail traders’ risk appetites. Exchanges adjust the funding rate based on the leverage demand imbalance. In neutral markets, longs typically pay a monthly fee of 0.4% to 1.8%, with rates exceeding this range indicating increased bullish sentiment.
The current 1.3% monthly funding rate is the highest in over two weeks, although it remains within the neutral range. As a result, Bitcoin derivatives metrics have improved despite the decline in open interest. This suggests that Bitcoin bears are not confident in adding positions below $95,000, which provides a positive outlook for the price.
Please note that this article is for general information purposes and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.