Market Wrap: Bitcoin Pullback Pauses as Traders Reduce Leverage

Bitcoin’s price continued to stabilize around $60,000 on Wednesday after dropping nearly 15% from an all-time high near $69,000. Some analysts remain bullish on BTC’s price due to improving blockchain data, suggesting the current pullback could be short-lived.

“The drop seems to be related to excessive leverage in the system being flushed out,” Jan Wuestenfeld, an analyst at CryptoQuant wrote in a blog post. “As long as on-chain fundamentals do not change on these price corrections, the medium-term outlook remains bullish,” Wuestenfield wrote.

Unmute

Technical indicators show a positive upward trend for BTC, which means buyers could remain active on pullbacks. Still, the $63,000-$65,000 price zone could limit further upside over the short term.

Latest Prices

Bitcoin (BTC): $60,374, +0.85%
Ether (ETH): $4,257, +1.17%
S&P 500: $4,688, -0.26%
Gold: $1,866, +0.88%
10-year Treasury yield closed at 1.59%

Leveraged liquidations

The chart below shows elevated funding rates (the cost of holding long positions in the perpetual futures listed on major exchanges) in bitcoin and ether. The recent rise in funding rates indicated a greater appetite for leverage among traders, some of whom became vulnerable to liquidations as prices dropped.

As markets stabilize around current levels, funding rates have reset back near neutral territory, according to Joo Kian, an analyst at Delphi Digital, a crypto research firm.

Bitcoin and ether funding rates (Delphi Digital)

“Prior to this, open interest was at peak levels for most trading pairs; typically, flushing out excessive leverage is healthy for markets over the longer term,” Kian wrote.

Separately, in the bitcoin options market, open interest (contracts that have been traded but not yet liquidated by an offsetting trade) is near all-time highs last seen during March and April, which preceded a significant price drop. It is possible that open interest can remain around current levels for another month before a sustained downturn in BTC’s price.

Bitcoin options open interest (Glassnode)

Altcoin roundup

Avalanche’s AVAX token surges to all-time high: AVAX is up 85% in the past 30 days, pushing its market capitalization to $23 billion. Avalanche founder and Ava Labs CEO Emin Gun Sirer said Tuesday his company will be partnering with “Big Four” accounting firm Deloitte “to build more-efficient disaster relief platforms using the Avalanche blockchain,” which may have propelled the latest leg up in the AVAX coin price, CoinDesk’s Lyllah Ledesma reported.
Oasis launches $160M ecosystem fund: The layer 1 project, long in development, is finally preparing for prime time, CoinDesk’s Andrew Thurman reported. The fund will be used to seed early-stage projects building on Oasis, including “[decentralized finance], NFTs [non-fungible tokens], metaverse, data tokenization, data DAO, data governance” and other projects.
KuCoin Labs launches $100M fund for metaverse projects: The KuCoin Metaverse fund will invest in gaming and NFT projects, CoinDesk’s Tanzeel Akhtar reported. The metaverse is a space generated by the convergence of virtual worlds, augmented reality and internet services.

Relevant news

Other markets

Most digital assets in the CoinDesk 20 ended the day higher.

Notable winners as of 21:00 UTC (4:00 p.m. ET):

Polygon (MATIC): +6.73%
Polkadot (DOT): +3.00%
Aave (AAVE): +2.40%

Notable losers:

Algorand (ALGO): -2.33%
Litecoin (LTC): -2.24%
Cardano (ADA): -1.59%

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CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. In November 2023, CoinDesk was acquired by the Bullish group, owner of Bullish, a regulated, digital assets exchange. The Bullish group is majority-owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial committee to protect journalistic independence. CoinDesk employees, including journalists, may receive options in the Bullish group as part of their compensation.