In recent weeks, Bitcoin has struggled to break above the price resistance at $82,000 and is now trading around $78,000. While the integrity of any of these zones carries significant but different implications for the growth of the flagship cryptocurrency, a crypto research and education group has revealed that several factors point to a growing vulnerability in the market.
Leveraged risks increase as ETF outflows increase
In a recent Quicktake post on CryptoQuant, XWIN Research Japan dug in multiple signals in the chain that jointly radiated a signal of uncertainty for the Bitcoin market. The crypto research group started by quoting Axel Adler Jr.’s Estimated Leverage Ratio (ELR).
For context, the ELR measures the amount of leverage traders use in the Bitcoin futures market by comparing open interest to the amount of BTC held on exchanges. In the Quicktake post, the education group highlighted that the ELR was up towards 14.9% – a sign that traders are increasingly borrowing capital to maintain their bullish exposures.
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XWIN Research Japan noted that while high debt levels can increase prices in the short term, “healthy bull markets are typically driven by spot demand.” According to the analytics firm, current conditions only increase the Bitcoin market’s vulnerability to sudden liquidation events.
In particular, there have been significant increases in both open interest and funding rates, reflecting the overwhelming presence of long positions. XWIN Research Japan pointed out that this could be a dangerous scenario as “long positions are now increasingly exposed to downside volatility” following Bitcoin’s recent move to $82,000, also driven by sell-side liquidity.
Interestingly, these are all ongoing as US-based institutions appear to be on a hiatus (as reflected in a long-term negative reading on Coinbase Premium). Even more shocking, US Spot Bitcoin ETFs saw nearly $1 billion in capital outflows over the past week, according to XWIN Research Japan.
To paint a clear picture of the market situation, XWIN Research cited the ongoing backdrop of deteriorating macroeconomic conditions. The crypto research group highlighted that 10-year US Treasury yields have risen to nearly 4.6%, while 30-year yields have risen above 5%. – both show that markets are currently leaning towards the “higher for longer” interest rates.
Liquidity is still on the sidelines: Research Group
Despite these conditions, XWIN Research emphasized that the market remains decidedly bearish. According to the group, Bitcoin Long-term Holders own more than 15 million BTC, with more than 316,000 BTC coming onto the market in the past month.
Furthermore, XWIN Research highlighted a concurrently growing liquidity pool on Binance (the world’s largest crypto exchange by trading volume), as reflected in stablecoin inflows. Ultimately, the research institute highlighted the range of $78,000 – $79,000, which overlaps with the price achieved by STH.
If this key level fails, XWIN Research expects bearish pressure to rise immediately. On the other hand, ETF flow stability should give Bitcoin some bullish momentum as Coinbase Premium recovers. At the time of writing, Bitcoin is worth approximately $78,194, which represents a daily loss of 1.2%.
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Featured image from iStock, chart from TradingView