Market Analysis: Growing Leverage During Downturn
Bitcoin derivatives markets are displaying what K33 Research describes as a dangerous pattern, as traders are adding aggressive leverage during a correction that has pushed Bitcoin down 14% over the past week to an intraday low of $88,783 on Tuesday. This level represents the weakest price point since April.
Perpetual futures traders have expanded open interest by more than 36,000 Bitcoin, marking the largest weekly growth since April 2023, according to K33 Head of Research Vetle Lunde. Funding rates have climbed simultaneously, signaling a behavior of attempting to catch a falling knife rather than engaging in defensive positioning.
Lunde stated that the growing funding rates likely stem from resting limit orders being filled in the hope of a swift bounce as prices pushed below six-month lows. However, no bounce has materialized, and the current leverage now represents an excess overhang that increases the risks of amplified volatility driven by liquidations.
The rise in funding rates indicates that more traders are competing for long exposure, thereby increasing vulnerability if prices continue to decline. Because every long position is matched with a short in monetary value, a squeeze risk exists on both sides of the market.
Historical Precedents and Institutional Sentiment
Lunde warned that such divergence has historically preceded negative price action. CME futures premiums are sitting near yearly lows, while the term structure remains narrow, reflecting persistent risk aversion among institutional participants. The concerning market structure statistically mirrors seven similar regimes over the past five years, six of which saw continued declines over the following month with an average 30-day return of negative 16%.
Six of the past seven ETF trading sessions have ended in outflows, including a 10,060 Bitcoin single-day withdrawal on November 13th, which was the fourth-largest daily outflow since U.S. ETFs launched. Bitcoin has faced a wave of ETF selling, with products losing 20,150 Bitcoin over the past week and nearly 40,000 Bitcoin over the past 30 days.
Bitcoin's 30-day return stands at negative 14.7% compared to the Nasdaq's negative 0.18%, even as correlations between the assets have hit yearly highs. The selling coincides with long-term holder distribution and weakness relative to tech stocks.
Potential Price Levels and Outlook
Lunde noted that while the firm expects better conditions ahead amid accelerating institutional adoption and supportive monetary conditions, the present drawdown ranks among the most severe 43 days into a downturn since 2017. K33 acknowledged that measuring 43-day returns is arbitrary and emphasized that it does not expect a repeat of lasting bear cycles seen in 2018 and 2022.
If the decline tracks the two deepest drawdowns of the past two years, the firm estimates a potential bottom between $84,000 and $86,000. A deeper leg toward April's low and Strategy's average entry price of $74,433 could materialize if selling pressure intensifies. Both levels represent psychological areas monitored by many traders. While a common misunderstanding suggests Strategy may become a forced seller with prices below its cost basis, the level itself represents a potential area the market could chase, according to the analysis.