Bitcoin has recently experienced significant volatility, with Crypto King down to $112,500 twice this month. This price movement may be of concern, but it is important to understand the dynamics behind the decline.
This drop is driven primarily by leveraged positions and is unlikely to last long given the wider market situation.
Bitcoin investors are not behind the decline
Futures market activity has a major impact on market sentiment over Bitcoin, but on-chain profit and loss acquisitions have been relatively restricted during recent ATH formation and subsequent revisions.
Open interest in Bitcoin futures contracts remains high at $67 billion, indicating a high level of leverage in the market. Leverage is a powerful tool for commercial purposes, but as we have seen in recent market movements, it can exacerbate price fluctuations.
In particular, more than $2.3 billion in public interest was wiped out during the recent sale. This was one of the biggest nominal declines, with the trading day on the 23rd recording a bigger drop. Such a critical rewind emphasizes the speculative nature of the market. There, even modest price movements can cause contraction of leveraged positions.
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Bitcoin futures OI change. Source: GlassNode
This is further supported by the fact that in recent weeks, volatility-adjusted net profit/loss metrics have shown that softened profit acquisition activity. In previous breakout scenarios, such as the $70,000 and $100,000 price levels in 2024, a significant amount of profitable showed strong investor activity.
At these points, the market has absorbed sales pressure from existing BTC holders. However, the latest all-time best attempt at $122,000 this July has resulted in fewer profits, suggesting a change in market behavior.
One interpretation of this dynamic is that the market struggled to maintain its upward momentum despite a soft sale from current holders. This lack of strong profit acquisition could indicate a weak demand to absorb supply, which could explain current market consolidation and limited movements, despite reaching new price levels.
Bitcoin Volatility Adjusted Net Profit/Loss. Source: GlassNode
BTC prices bounce back
Bitcoin currently costs $114,200. This comes after bounced back a support level of $112,526 for the second time this year. This recovery is expected to continue as the decline is primarily due to leverage-related sales. A bounceback is likely, given the relative strength of Bitcoin support is $112,526.
If Bitcoin successfully violates and flips the $115,000 mark to support, the cryptocurrency could rise to $117,261. Maintaining this level of support is key to continuing the bullish trend and could pave the way for a move to $120,000.
Bitcoin price analysis. Source: TradingView
However, if Bitcoin does not violate $115,000 or if investors move further into sales, the price could fall below $112,526. Such a move could reduce Bitcoin to under $110,000. This will invalidate the current bullish paper and signal the potential long-term bearish phase of cryptocurrency.
Post Bitcoin Prices Fall – Leverage-driven decline first appeared in Beincrypto.
