Bitcoin rose above $44,000, but traders should be cautious.
A cluster of liquidity around $45,870 could lead BTC to retrace.

Bitcoin’s [BTC] brief jump above $44,000 on the 21st of December brought back optimism to holders of the coin.

The rise instilled some confidence that BTC’s time to shine has not yet fizzled out, especially as Bitcoin’s price failed to make any big moves in the recent past.

However, traders need to exercise caution despite the price increase. This was the opinion of Greatest_Trader, an author on CryptoQuant.

According to Greatest_Trader, Bitcoin’s price action has impacted the increase in long positions. This inference was indicated by the king coin’s Funding Rate.

Time to be careful with the longs

AMBCrypto checked out the Funding Rate and found out that the metric was positive. By definition, a positive Funding Rate means long positions were predominant in the market at press time.

A long position means a perpetual contract predicting a price increase for a cryptocurrency to make profits from the bet.

If the Funding Rate is negative, it means that shorts are dominating the market. But for the analyst, the current Funding Rate may suggest a bullish outlook, as the trend could lead to a rise in long liquidations.

However, Greatest_Trader called for vigilance in his publication, noting that:

“If this trend persists, the market could see a significant shift in the short term. Specifically, there’s a potential risk of a ‘long liquidation cascade’, where a rapid sell-off could occur, dramatically affecting the market”

The analyst’s conclusion led AMBCrypto to assess possible points that longs could be liquidated. To do this, HyblockCapital’s Liquidation Levels indicator came in handy.

Liquidation Levels are estimated price positions where a trader’s position could be wiped out.

High leverage, impending liquidation

According to the chart below, there was a cluster of liquidity around the $44,900 to $45,870 region. Typically, the BTC price may head towards this zone—however, traders with a high leverage risk being liquidated at any of these points.

Upon hitting liquidation, Bitcoin’s price may also reverse.

The Cumulative Liquidation Levels Delta (CLLD) also suggested a bearish bias for Bitcoin. The CLLD, at press time, was positive. But the reading could lead the charge for a full retrace, with BTC potentially dropping below $43,000.

In terms of Open Interest, Coinglass showed that it had increased from the fall experienced on the 18th of December. The Open Interest is the amount linked to the number of outstanding futures positions in the market.

The increase implies that more liquidity has been allocated to BTC futures contracts.

Read Bitcoin’s [BTC] Price Prediction 2023-24

At the same time, it is important to consider the effect of the Open Interest on prices. Since the Open Interest increased and Bitcoin’s value fell, it suggests increasing downward momentum.

Should BTC fail to reclaim $44,000 as the Open Interest increases, there is a chance that the coin might drop to $42,000.

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Filed under: Bitcoin - @ December 21, 2023 1:30 pm