- Bitcoin rose above $44,000, but traders should be cautious.
- A cluster of liquidity around $45,870 could cause BTC to pull back.
Bitcoins [BTC] A brief jump above $44,000 on December 21 brought optimism back to the coin’s holders.
The rise instilled some confidence that BTC’s time to shine is not over, especially since Bitcoin’s price has not made any major moves in the recent past.
However, despite the price increase, traders should be cautious. This was the opinion from Greatest_Trader, an author on CryptoQuant.
According to Greatest_Trader, Bitcoin’s price action has influenced the increase in long positions. This inference was indicated by the financing rate of the king’s coin.
Time to be careful with the lungs
AMBCrypto has the Financing rate and found that the benchmark was positive. By definition, a positive coverage ratio means that long positions dominated the market at the time of writing.
A long position means a perpetual contract that predicts a price increase for a cryptocurrency to make a profit from the bet.
Source: Santiment
If the financing rate is negative, it means that shorts dominate the market. But for the analyst, current funding rates could indicate a bullish outlook as the trend could lead to a rise in long-term liquidations.
However, Greatest_Trader called for vigilance in its publication, noting that:
“If this trend continues, the market could see a significant shift in the short term. In concrete terms, there is a potential risk of a ‘long liquidation cascade’, where a rapid sell-off could occur, with dramatic consequences for the market.”
The analyst’s conclusion led AMBCrypto to assess possible points at which longs could be liquidated. To do this, HyblockCapital’s liquidation levels apply indicator came in handy.
Liquidation levels are estimated price positions at which a trader’s position could be wiped out.
High debt burden, impending liquidation
According to the chart below, there was a cluster of liquidity around the $44,900 to $45,870 region. Normally, BTC price can move towards this zone, but highly leveraged traders are at risk of being liquidated at any of these points.
If there is liquidation, Bitcoin’s price could also reverse.
The Cumulative Liquidation Levels Delta (CLLD) also suggested a bearish bias for Bitcoin. The CLLD was positive at the time of writing. But the reading could be the impetus for a full-blown retracement, with BTC potentially falling below $43,000.
Source: HyblockCapital
In terms of Open Interest, Coinglass showed that it had increased since the fall of December 18. The Open Interest is the amount linked to the number of outstanding futures positions on the market.
The increase implies that more liquidity has been allocated to BTC futures contracts.
Read Bitcoin’s [BTC] Price forecast 2023-24
At the same time, it is important to take into account the effect of Open Interest on prices. Since Open Interest increased and Bitcoin’s value decreased, this indicates increasing downward momentum.
Should BTC fail to recover $44,000 as Open Interest rises, there is a chance the coin could drop to $42,000.
Source: Coinglass