Bitcoin is currently testing a crucial support level near $89,200 amidst heightened market volatility observed in recent days.
After reaching approximately $95,000 on Monday, Bitcoin experienced a decline over the next three days, dropping to around $89,300. This price point is notable as it aligns with the 50-day moving average and serves as an important technical support zone. Following this dip, buying pressure helped the price bounce back to about $90,500.
According to Wintermute, a cryptocurrency trading firm, the primary factors contributing to this recent downturn include diminished trading volumes and profit-taking activities. Jake Ostrovskis, who leads OTC Trading at Wintermute, noted that despite an uptick in risk appetite earlier this year, the market struggled to surpass the resistance level of $95,000. He pointed out that this inability to break through resistance—coupled with ETF outflows over the past two days—has resulted in erratic price movements.
An additional element exerting downward pressure on Bitcoin’s value has been adjustments in expectations regarding Federal Reserve interest rate policies. Data from CME FedWatch indicates that the likelihood of an interest rate cut during the Fed meeting scheduled for January 28th has dropped to 11.6%. This figure was previously at 15.5% just one week ago and stood at 23.5% a month prior.
Market positioning within derivatives suggests a rise in leverage among traders. The funding rate for Bitcoin perpetual futures remains positive at around 0.09%, indicating that those holding long positions are compensating short position holders for keeping their trades open; thus maintaining their “buy-the-dip” strategy even amid pullbacks. However, such positive funding rates during declines highlight a concentration of long positions which could lead to increased liquidation risks if prices do not rally as anticipated. Analysts caution that even minor pullbacks may put strain on leveraged positions and trigger further selling pressure.
*This content does not constitute investment advice.