Bitcoin Price Decline Attributed to Futures Market Long Squeeze and Global Economic Caution
Bitcoin’s price fell over 3% amid a long squeeze in the futures market, with significant liquidations reported. The decline coincides with investor caution due to potential interest rate hikes from the Bank of Japan, leading to negative sentiment in global equities. Liquidations totaled $181 million, with Bitcoin facing the highest losses, especially from long positions.
According to data from CryptoQuant, Bitcoin’s price experienced a decline of over 3% within the past 24 hours due to a “long squeeze” within the perpetual futures market. The recent downturn in the cryptocurrency market aligns with increased caution in global equity markets, primarily as investors anticipate potential interest rate hikes by the Bank of Japan, which could influence overall risk sentiment. CryptoQuant’s Head of Research, Julio Moreno, explained, “Bitcoin perpetual futures market data shows that there was a long squeeze in recent hours, as long liquidations spiked.” This phenomenon occurs when the price of an asset such as Bitcoin drops, leading traders with leveraged long positions to sell or face liquidation due to the necessity to meet margin requirements. This selling pressure can further exacerbate the price decline, creating a cycle of margin calls and forced sell-offs that amplify downward price momentum. Over a 24-hour period, approximately 64,838 traders faced liquidation, resulting in total liquidations across centralized exchanges amounting to $181 million. Bitcoin specifically dominated the liquidation trends, with nearly $49 million liquidated, predominantly from long positions totaling over $40 million. On Sunday, analysts at CryptoQuant noted a significant increase in speculation within the futures market, with open interest climbing to about $19.1 billion. It was highlighted that this level of open interest had exceeded $18.0 billion only six times since March 2024, with each instance leading to a subsequent price decline, marking the seventh occurrence now. In a broader context, the recent leadership change in Japan has led to rising caution in global markets. Following the election of Shigeru Ishiba as the country’s prime minister, speculation regarding a shift in the Bank of Japan’s monetary policy has emerged. Ishiba’s pro-rate hike stance could align with the central bank’s current governor, Kazuo Ueda, contributing to an atmosphere of caution among global investors. This anticipation of interest rate hikes has tempered the earlier risk-on sentiment observed following recent economic stimulus measures announced in China and the U.S. Federal Reserve’s rate cut on September 18. Ishiba’s appointment resulted in an appreciation of the yen while the Nikkei 225 Index experienced its most significant decline in eight weeks at 4.8%. This caution spread through global equity markets, causing a slight pullback in the S&P 500 and Dow Jones indexes, despite the remarkable surge of over 8% in China’s Shanghai Composite Index, the most substantial increase since 2008, driven by the stimulus plans.
The current decline in Bitcoin’s price is a direct consequence of activities within the perpetual futures market, specifically a phenomenon known as a “long squeeze.” In this context, the market’s volatility is exacerbated by external economic factors, particularly the anticipated monetary policy changes from the Bank of Japan. Such expectations lead to increased caution among investors in both the cryptocurrency and global equity markets, aligning investor behavior with wider economic sentiments regarding risk appetite. The recent management transition in Japan further emphasizes the potential shifts in monetary policy, impacting investor sentiments across markets.
In summary, Bitcoin’s recent price drop significantly correlates with a long squeeze in the perpetual futures market, a situation worsened by external economic factors such as potential interest rate increases from the Bank of Japan. This downward momentum reflects a broader trend of caution within global equity markets, influenced by the new leadership in Japan and the anticipated implications of its monetary policy. As investors navigate these changes, volatility in the cryptocurrency market is likely to continue.
Original Source: www.theblock.co
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