Bitcoin has been struggling to maintain prices above $95,000 since December 28th, with a decline in demand for leveraged positions. During this period, bulls faced $470 million in liquidations, while bears showed reduced appetites, especially as Bitcoin tested levels below $92,000.
The open interest, which refers to the total number of contracts across all Bitcoin (BTC) futures markets, has dropped to its lowest level in two months. Although bears have gained the upper hand in the short term, their diminished appetite suggests limited downside potential for Bitcoin’s price.
Bitcoin futures open interest reached its peak at BTC 668,100 on December 20th, 2024, but 11% of those positions have since been closed. The current level of BTC 595,700 is the lowest since November 4th, although this does not necessarily indicate a defeat for the bulls.
The futures premium, which indicates the demand for leverage from either bulls or bears, provides a clearer picture of market sentiment. Normally, monthly contracts show a 5% to 10% annualized premium, and premiums above that range indicate stronger bullish sentiment.
On December 28th, the 1-month BTC futures premium briefly approached neutral levels at 9.5%, but quickly rebounded above the 10% threshold. The premium now stands at 15%, the highest since December 20th, 2024, signaling continued conviction from bulls despite recent Bitcoin price weakness.
Remarks from United States Treasury Secretary Janet Yellen have provided optimism for Bitcoin buyers. On December 27th, 2024, Yellen wrote to congressional leaders, warning that the federal government could hit its debt limit as early as January 14th unless action is taken by Congress or the Treasury Department.
House Speaker Mike Johnson’s statement that a $1.5 trillion debt limit increase through reconciliation would only be possible with $2.5 trillion in “net mandatory spending” cuts has further complicated the situation. Reduced government spending typically has a negative impact on the stock market, leading traders to adopt a more risk-averse stance.
Bitcoin’s fiscal standoff risks have reduced appetite but enhanced the appeal of ETF hedges. The incoming administration of President-elect Donald Trump faces challenges from hard-line Republicans who have historically opposed any debt limit increase. At least two dozen House Republicans adhere to this position, putting a reconciliation deal at risk.
For Bitcoin investors, the potential fiscal standoff has both bullish and bearish implications. While short-term uncertainty may reduce investors’ risk appetite, analysts suggest that the $105 billion in Bitcoin exchange-traded funds (ETFs) has helped establish the cryptocurrency as an alternative hedge.
Perpetual futures contracts also serve as an indicator of retail traders’ risk appetites, with exchanges adjusting the funding rate based on the imbalance in leverage demand. In neutral markets, longs (buyers) typically pay a monthly fee of 0.4% to 1.8%, and rates exceeding this range indicate increased bullish sentiment.
The current monthly funding rate of 1.3% is the highest in over two weeks, although it remains within the neutral range. As a result, Bitcoin derivatives metrics have improved, even as open interest has declined. This suggests that Bitcoin bears are not confident in adding positions below $95,000, which provides a positive outlook for the price.
This article is for general information purposes and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.