The key takeaways
- The bears are trapped by a possible $2.6 billion in over-leveraged Bitcoin long positions between 63,000 and 66,000.
- Negative funding rates are a sign that the bulls’ leverage has been fully reduced, thereby reducing their risk.
Bitcoin (BTC), which crashed to $61,100 last Friday, erased $335 million of leveraged long position. Bulls may have created a trap after the 21% drop in Bitcoin price. The negative sentiment on the market intensified. Between $63,000 and 66,000, bearish positions grew rapidly. This set the stage for an eventual $2.6 billion squeeze.
Source: CoinGlass Estimated total Bitcoin liquidity at major exchanges in USD. Source: CoinGlass
Liquidations estimated for an additional 8% decline in Bitcoin, from $62,000 down to $57,000 stand at approximately $1.2 Billion. A rise to $66,000 could put $2.6 Billion of short positions in danger. It is possible that this potential squeeze will be sufficient to boost buyers’ confidence, following the record-breaking 13-day streak of net outflows Exchange-traded Funds (ETFs) that trade Bitcoin are available.
US-listed Bitcoin ETFs, daily net flows. Source: SoSoValue
It is possible that the $3 million inflow net on Thursday was a breather after 15 consecutive days of sell-offs which drained $5 billion. Although momentum may have officially switched in the favor of bulls, it is too soon to say. If bears played cautiously and kept their leverage at a low level, then the threat of an enormous short squeeze may be minimized.
Bitcoin annualized funding rates for perpetual futures. Source: Laevitas
Longs pay to maintain their open positions. A neutral funding rate is typically between 6 and 12 percent. Current Bitcoin perpetual futures negative funding rates of -2% indicate growing bear confidence. Bulls are fully leveraged, so even if Bitcoin takes some time to recover the $66,000 mark, they have reduced downside risks.
Nasdaq 100 futures (left) vs. Bitcoin/USD (right). TradingView
Bitcoin is underperforming the Nasdaq 100 Index, and the Tech Sector has begun to show signs of weakness. Broadcom (AVGO) lost $280 Billion in value after closing down 12.6% on Thursday. Investors were alerted when the company cut its AI chip forecast for 2026’s second half.
Strategy’s 32 BTC and the impact of tech sector IPOs
Impact was also felt on other names that are prominent in the AI field. Micron (MU US), a major player in the AI sector, fell 7.8%. Arm (ARM US), meanwhile, dropped by 4.5%. As SpaceX’s, Anthropic’s, and OpenAI’s highly anticipated IPOs were in the near future, it is likely that investors raised money ahead of these offerings. According to analysts, this liquidation drain has contributed to Bitcoin’s recent weakness.
Related: Strategy’s leveraged Bitcoin model has faced its first stress test–Grayscale
Source: X/dgt10011
Jeff Park of ParaFi Capital, and Bitwise advisor, says that as AI becomes more popular, it drains money away from other sectors. “hot ball of money” All of a sudden, everyone “has to own”. Park points out that Bitcoin’s discounted value will be in its favour once the AI-mania has ended.
Even if Bitcoin’s recent weakness was due to AI sector hype, bears who are overconfident pose a risk when spot Bitcoin ETF flows pick up. 32 BTC sale from Strategy (MSTR US) dissipates. At first, a rally to $66,000 may seem impossible. However, if a short squeeze occurs suddenly the momentum could shift in favor of bulls.
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Source: cointelegraph.com
