Bitcoin (BTC) has struggled to maintain its price above $95,000 since December 28, but demand for leveraged positions has been declining. During this period, the bulls faced a $470 million liquidation, while the bears showed diminished appetite, especially as Bitcoin tested levels below $92,000.
Measured by open interest (the total number of contracts in the entire Bitcoin futures market), positions have fallen to their lowest level in two months. Although the bears have had the upper hand in the short term, their waning appetite suggests that there is limited downside for the Bitcoin price.
Total open interest in Bitcoin futures, BTC. Source: Coin Glass
Bitcoin futures open interest peaked at 668,100 bits on December 20, 2024, after which 11% of positions were closed. The current level of 595,700 Bitcoin is the lowest since November 4, but this does not necessarily indicate defeat for the bulls.
Since there are always both bulls and bears in the market, futures premiums give a clearer picture of who is demanding more leverage. Annualized premiums for monthly contracts typically range from 5% to 10%, and premiums above that range indicate strong bullish sentiment.
Bitcoin 2 month futures premium. Source: laevitas.ch
On December 28th, the one-month BTC futures premium briefly approached the neutral level, reaching 9.5%, but quickly exceeded the 10% threshold. The premium currently stands at 15%, the highest level since December 20, 2024, indicating continued bullish conviction despite the recent decline in Bitcoin prices. .
U.S. Treasury Secretary Janet Yellen's comments brought some much-needed optimism to Bitcoin buyers. On December 27, 2024, Speaker Yellen sent a letter to Congressional leaders stating that unless Congress or the Treasury takes action, the federal government could reach the debt ceiling as early as January 14. I warned you.
According to Yahoo Finance, House Speaker Mike Johnson said the settlement's $1.5 trillion debt ceiling increase would only be possible if combined with $2.5 trillion in “net mandatory spending” cuts. It could have made the situation even more complicated. Cuts in government spending usually have a negative impact on stock markets, causing traders to become more risk-averse.
Related: Bitcoin analysis shows 'decreased risk aversion' as retail demand increases by 13%
Bitcoin’s fiscal conflict risk dampens appetite but increases ETF hedging appeal
A major challenge for the incoming Trump administration lies with a sizable portion of hardline Republicans who have historically opposed any increase in the debt ceiling. At least 20 House Republicans are sticking to this position, Yahoo Finance reported, putting the settlement agreement in jeopardy.
For Bitcoin investors, a potential financial conflict has both bullish and bearish implications. Short-term uncertainty may reduce investors' risk appetite, but analysts believe that $105 billion worth of Bitcoin exchange-traded funds (ETFs) will help establish Bitcoin as an alternative hedge. suggests that it is helpful.
Additionally, perpetual futures contracts serve as an indicator of individual traders' risk appetite. Exchanges adjust funding rates based on imbalances in leverage demand. In neutral markets, longs (buyers) typically pay monthly fees of 0.4% to 1.8%, and interest rates above this range indicate growing bullish sentiment.
Bitcoin Perpetual Futures 8 Hour Funding Rate, %. Source: Laevitas.ch
The current monthly funding rate is 1.3%, in a neutral range but the highest level in more than two weeks. As a result, Bitcoin derivatives metrics improved despite a decline in open interest. This suggests that Bitcoin bears are not confident in adding to positions below $95,000, which gives a positive outlook to the price.
This article is for general informational purposes only and is not intended to be, and should not be taken as, legal or investment advice. The views, ideas, and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
