Amid increased volatility in recent days, Bitcoin continues to test a key support level near $89,200.
Bitcoin, which rose to around $95,000 on Monday, then fell for three consecutive days, first falling to the $89,300 level. This area stands out as an important technical support level as it coincides with the 50-day moving average. Buying pressure from this level caused the price to recover to around $90,500.
Cryptocurrency trading firm Wintermute said the main reasons for the recent decline were low trading volumes and profit taking. Jake Ostrovskis, head of OTC trading at Wintermute, said that despite the recovery in risk appetite seen at the beginning of the year, the market was unable to break through the $95,000 resistance level. This situation, combined with ETF outflows over the past two days, has caused volatile, two-way price movements, Ostrovskis said.
Another factor that increased pressure on the market was a downward revision to expectations for the Federal Reserve’s interest rate policy. The probability of a rate cut at the Fed’s Jan. 28 meeting has dropped to 11.6%, according to CME FedWatch data. The rate was 15.5% a week ago and 23.5% a month ago.
Positioning in the derivatives market indicates increased leverage. The funding rate for Bitcoin perpetual futures remains positive at approximately 0.09%. This suggests that long position holders are paying short positions to maintain open positions, and that the ‘buy the bull’ strategy continues even during the pullback. However, the fact that the funding ratio remains positive during the decline indicates a concentration of long positions and an increased potential liquidation risk if the price does not rise as expected. Analysts have warned that even a limited rebound could strain leveraged positions and create further selling pressure.
*This is not investment advice.
