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With a bitcoin leverage squeeze in play, the price could go in that direction

With the price of Bitcoin dropping as low as $ 47,450 and losing over 8% in the past three days, the anticipation of a New Years rally seemed to dry up. A move below the $ 50,000 support triggered a sale, followed by a further drop in price below the $ 48,000 support, which was Bitcoin trading at the time of writing.

Ahead of 124.7,000 options contracts expiring on Friday, the recent break below $ 48,000 could lead the top asset one way or another.

Option market heated

The combined trading volume of Bitcoin and Ethereum options rose + 443% in 2021 to $ 387 billion for the year ended December 27. Last year, BTC and ETH options saw combined trading volumes of over $ 71 billion.

Source: TheBlock

In the last week alone, OI has seen an increase of roughly $ 2.5 billion, largely led by traders on Binance. While the futures OI is still far from all-time highs, rapid increases in leverage can indicate an accumulation of stop-loss and liquidation levels in close proximity to current price.

Glassnode’s data also showed how this increase in leverage may add higher probabilities to a potential short or long squeeze in the near future.

Source: Glassnode

A general decline in trading volume can usually be observed towards the end of the year, but on a 7-day average the volume of the futures market has declined by 16% since the beginning of the year. Thinner volume and increasing OI in a concentrated exchange is a combination that may be beneficial to at least one localized leverage squeeze in the coming weeks.

With the BTC leverage ratio at the ATH level, there was an opportunity for a correction to flush out all of the excess leverage as prices collapsed.

Source: CryptoQuant

HODLers are still stuck

Historically, the market posted a 32% loss in July to a low of $ 29,000, while 26% of BTC supply is currently in “losing” territory. Nonetheless, some long-term owners have not touched their BTC in over five years, with over 23% of BTC’s $ 21 million supply remaining untouched during that period.

For now, long-term owners have trimmed their BTC positions slightly over the past few weeks, even though prices have fallen nearly $ 20,000, or -24.4%, since the BTC ATH. The supply of investors fell from 13.4 million only to 13.3 million, a slight change compared to the sharp drop in prices.

Source: Glassnode

Analyst Rekt Capital highlighted Bitcoin’s re-visit to the 21-week EMA, where the coin was rejected. In the past, BTC has pulled down wicks into the orange area during this red retest, so there is a chance of revisiting the lower $ 44,000 level unless the 21-week EMA is set as a short-term support.

If the range between $ 40,000 and $ 42,000 is retested it could likely turn to a local low in the medium term, but for now BTC price could hit lower levels with the end of the year and the possibility of leverage in the coming days.

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