Bitcoin (BTC) has struggled to maintain a price above $95,000 since December 28, but demand for leveraged positions has significantly decreased. During this time, the bulls have faced liquidations worth $470 million, while the bears show a decline in demand, especially as Bitcoin tests levels below $92,000.

Open interest decreases, but the bears have not fully taken over

Measuring by open interest—the total number of contracts across all Bitcoin futures markets—positions have decreased to a two-month low. Although the bears have dominated in the short term, the decline in their demand suggests that the downside potential for Bitcoin is limited.

Bitcoin futures aggregated open contracts, BTC | Source: CoinGlass

The open interest for Bitcoin futures peaked at 668,100 on December 20, 2024, but 11% of these positions have been closed since then. The current level of BTC 595,700 is the lowest since November 4, but this does not necessarily indicate a failure of the bulls.

As both bulls and bears are always present in the market, the futures spread provides a clearer view of which side is demanding more leverage. Typically, monthly contracts show spreads from 5% to 10% annually, and spreads above this range signal strong bullish sentiment.

Bitcoin 2-month futures premium | Source: laevitas.ch

On December 28, the 1-month futures spread approached neutral levels, reaching 9.5%, but quickly recovered above the 10% threshold. Currently, this spread stands at 15%, the highest since December 20, 2024, indicating continued confidence from the bulls despite Bitcoin's recent price weakness.

Driving factor from statements by the U.S. Treasury Secretary

Comments from U.S. Treasury Secretary Janet Yellen have brought the necessary optimism for Bitcoin buyers. On December 27, 2024, Yellen wrote to congressional leaders warning that the federal government could hit the debt ceiling as early as January 14 if Congress or the Treasury does not act.

House Speaker Mike Johnson has complicated the situation further by stating that increasing the $1.5 trillion debt limit through reconciliation can only occur if accompanied by a $2.5 trillion cut in 'net mandatory spending.' Reducing government spending often negatively impacts the stock market, making traders more cautious.

Risks from financial deadlock and risk hedge opportunities

The main challenge for the upcoming Trump administration lies in a significant portion of hardline Republicans who have a history of opposing any debt limit increases. At least two dozen House Republicans adhere to this view, putting a reconciliation deal at risk, according to Yahoo Finance.

For Bitcoin investors, the potential financial deadlock brings both positive and negative impacts. While short-term uncertainty may dampen investors' risk appetite, analysts suggest that $105 billion in Bitcoin ETF funds has helped establish this cryptocurrency as an alternative risk hedge.

Funding rate and Bitcoin derivatives index

Perpetual futures also serve as an indicator of the risk appetite of retail traders. Exchanges adjust the funding rate based on imbalances in leverage demand. In neutral markets, buyers (long) often pay a monthly fee from 0.4% to 1.8%, with rates exceeding this range signaling increased bullish sentiment.

8-hour funding rate for Bitcoin perpetual futures, %. Source: Laevitas.ch

Currently, the monthly funding rate of 1.3% is the highest in over two weeks, although it remains within neutral range. As a result, Bitcoin's derivatives indicators have improved, even as open interest declines. This suggests that Bitcoin's bears are not confident in adding positions below $95,000, providing a positive outlook for prices.

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