Bitcoin (BTC) has struggled to maintain prices above $95,000 since Dec. 28, but demand for leveraged positions has been on the decline. During this period, bulls faced $470 million in liquidations, while bears showed reduced appetite, especially as Bitcoin tested levels below $92,000.
Measured by its open interest—the total number of contracts across all Bitcoin futures markets—the positions have dropped to their lowest level in two months. While bears have gained the upper hand in the short term, their diminished appetite suggests limited downside potential for Bitcoin's price.
Bitcoin futures aggregate open interest, BTC. Source: CoinGlass
Bitcoin futures open interest peaked at BTC 668,100 on Dec. 20, 2024, but 11% of those positions have since been closed. The current level of BTC 595,700 is the lowest since Nov. 4, though this doesn't necessarily indicate a defeat for the bulls.
As both bulls and bears are always present in the market, the futures premium provides a clearer picture of which side is demanding more leverage. Typically, monthly contracts show a 5% to 10% annualized premium and premiums above that range signal stronger bullish sentiment.
Bitcoin 2-month futures premium. Source: laevitas.ch
On Dec. 28, the 1-month BTC futures premium briefly approached neutral levels, reaching 9.5%, but quickly rebounded above the 10% threshold. Currently, the premium stands at 15%, the highest since Dec. 20, 2024, signaling continued conviction from bulls despite recent Bitcoin price weakness.
Remarks from US Treasury Secretary Janet Yellen provided much-needed optimism for Bitcoin buyers. On Dec. 27, 2024, Yellen wrote to congressional leaders, warning that the federal government could hit its debt limit as early as Jan. 14 unless Congress or the Treasury Department takes action.
House Speaker Mike Johnson may have further complicated the situation by stating that a $1.5 trillion debt limit increase through reconciliation would only be possible if paired with $2.5 trillion in "net mandatory spending" cuts, according to Yahoo Finance. Reduced government spending typically has a negative impact on the stock market, causing traders to adopt a more risk-averse stance.
Bitcoin's fiscal standoff risks reduce appetite but enhance ETF hedge appeal
The primary challenge for the incoming Trump administration lies with a significant fraction of hard-line Republicans who have historically opposed any debt limit increase. At least two dozen House Republicans adhere to this position, putting a reconciliation deal at risk, as reported by Yahoo Finance.
For Bitcoin investors, the potential fiscal standoff presents both bullish and bearish implications. While short-term uncertainty may reduce investors' risk appetite, analysts suggest that the $105 billion in Bitcoin exchange-traded funds (ETFs) has helped establish the cryptocurrency as an alternative hedge.
Additionally, perpetual futures contracts serve as an indicator of retail traders' risk appetite. Exchanges adjust the funding rate based on the imbalance in leverage demand. In neutral markets, longs (buyers) typically pay a monthly fee of 0.4% to 1.8%, with rates exceeding this range signaling increased bullish sentiment.
Bitcoin perpetual futures 8-hour funding rate, %. Source: Laevitas.ch
The current 1.3% monthly funding rate is the highest in over two weeks, although it remains within the neutral range. As a result, Bitcoin derivatives metrics have improved, even as open interest has declined. This suggests that Bitcoin bears are not confident in adding positions below $95,000, which provides a positive outlook for the price.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
