A rapid increase in leverage from the Bitcoin futures market (BTC) could mean that a short or long squeeze will be observed in the very short term, according to the on-chain analysis firm Glassnode.
“While open interest in futures contracts is still far from all-time highs, the rapid increase in leverage may indicate a consolidation of losses and liquidation levels near the current price,” Glassnode writes in his last article The Week Onchain for 2021.
He added that this increase in leverage “adds higher odds to a potential short, or long squeeze in the shorter term.”
Separately, an analyst said today that current market conditions make a long bearish squeeze more likely than a short squeeze.
“Now funding is increasing in recent hours as the price slumps …” said Will Clemente, Bitcoin analyst with the mining company Blockware Solutions, adding that these conditions are more favorable for a long squeeze than for a short squeeze.
A leveraged squeeze refers to an event where the price moves rapidly down or up, the movement being exacerbated by leveraged traders whose positions are liquidated when the price moves against them. A long squeeze refers to a rapid drop in prices, while a short squeeze refers to a rapid rise in prices.
Although Glassnode warned of the risk of short-term leverage tightening, the company also noted that trading volumes in the Bitcoin futures market have declined.
The drop in trading volume was particularly noticeable in December, with the 7-day moving average volume now 16% below the level at the start of the year.
“The decrease in volume and the increase in open interest (in a concentrated market) is a combination that may be favorable for a localized tightening of leverage in the coming weeks,” the report said, which admits. however, the decline in business activity is generally observed towards the end of the year.
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