Bitcoin is on the rise, nearing the $90,000 mark, but trading firm QCP Capital warns of potential risks ahead. The market is currently experiencing a sense of euphoria as BTC breaks key resistance levels and reaches multi-month highs. QCP Capital notes that perpetual funding rates are elevated, and basis yields are at seven-month highs, indicating possible leverage washouts in the near future.
The open interest-weighted funding rates in perpetuals have surged to 0.056%, the highest since at least March, suggesting that bullish long positions may be overcrowded. This could lead to a price pullback as over-leveraged bulls close their positions, exacerbating downward pressure on the market. Leverage washouts, common in previous bull markets, often result in sudden double-digit percentage drops in prices.
Per QCP Capital, historical data shows that sharp spikes in basis yields do not last long. Currently, standard futures contracts are trading at an annualized premium of over 15% across all exchanges, including the CME. This premium reflects the return available on market-neutral cash and carry arbitrage strategies.
Despite the warnings of potential risks and pullbacks, BTC is currently trading at $88,300, with a 30% gain in the past week. Prices reached a high of $89,622 during overnight trading. The price surge, which began after the U.S. election on Nov. 5, has instilled strong belief among traders that the upward trend will continue. Social media platforms are abuzz with optimism whenever potential resistance zones for BTC are discussed.
As investors navigate the volatile market conditions, it is essential to remain cautious and informed of the potential risks associated with leverage and over-optimism. While the current euphoria may fuel further price increases, it is crucial to be prepared for possible pullbacks and fluctuations in the market. By staying vigilant and monitoring key indicators, traders can make informed decisions to navigate the evolving landscape of the cryptocurrency market.
