According to Glassnode, an on-chain analytics firm, the BTC futures market could be seeing either a short-term or long-term squeeze in the coming weeks. This analysis was made due to the market’s rapid increase in leverage lately.
Glassnode says that even though futures open interest won’t reach any all-time highs anytime soon, a rapid change in leverage could mean that the market’s liquidation levels and stop-losses are close to the current pricing.
The analytics firm adds that due to this leverage increase, there’s a higher probability that there will be a short or long squeeze in “the more immediate term.”
This meant that perp traders were buying the dip on leverage/spot selling more aggressively than perps. (Those traders are currently getting flushed)
Generally speaking:
Price up, Funding down = Favorable for short squeeze
Price down, funding up = Favorable for long squeeze— Will Clemente (@WClementeIII) December 28, 2021
On the other hand, one analyst claims that it’s highly likely that the market will experience a long squeeze rather than a short one based on the current market conditions.
Will Clemente, a bitcoin analyst at Blockware Solutions, recently tweeted that funding has been increasing as the price “grinding down.” He adds that the situation favors a long squeeze instead of a short squeeze.
What Is a Leverage Squeeze?
That said, what exactly is a leverage squeeze? A leverage squeeze is when a crypto’s price either rapidly moves up or down. Notably, this is worsened by leveraged traders whose positions are liquidated while the price goes against them.
A long squeeze indicates that prices quickly decrease, while a short squeeze is the opposite. Although Glassnode has already warned the community that the bitcoin futures market could be seeing a leverage squeeze sometime soon, the company also mentioned that trading volumes have decreased.
This notable decrease was significantly distinguishable in December, as the volume is now less than 16% than the start of 2021.
