Leverage Wipeout? Why Bitcoin Could Re-Test Low Levels

Bitcoin chose violence, with a sharp move to the upside that resulted in a loss of 5% in the daily charts. The first cryptocurrency by market capital appears to be in recovery as it returns back to the middle-zone at its current levels.

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Bitcoin traded at $65,442 with a 3.6% profit on the daily chart. In the short term, BTC’s price has found support at these levels, but could see further downside if it dropps below $63,000.

BTC trend downwards on the daily chart. Source: BTCUSD Tradeview

BTC is poised to at least attempt to take $70,000, which would be the highest area of resistance. Material Indicators data still shows $62 million worth of potential orders at those levels.

Source: Material Indicators

In the derivatives sector, Bitcoin’s flash crash resulted in some leverage positions being wipe-out. The leverage ratio of all the exchanges plunged after an explosion that occurred in October.

This is still a lot higher than May 20, 2021, when Bitcoin suffered one of its worst corrections. It crashed from the previous high, close to $29,000, to its current yearly open.


Thus, as more traders turn bullish on BTC’s price recording more gains, the leverage ratio could increase. As liquidation cascades cause the market to trend, this opens the market to unexpected moves.

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Analyst David Puell explored Bitcoin’s crash and recorded an increase in Open Interest with positive premiums on exchange platform Binance, one of the largest in the world. Puell stated:

OI is a predictor of liquidation events and acts as fuel. Smarter players can grab liquidity on the negative side. The bearish signal is more reliable if Binance holds the OI. A liquidation event seems more likely given the fact that CME (Chicago Mercantile Exchange), can only go 2x.

What Could Make $100K Bitcoin Pricey?

Puell however, recorded a decrease in derivatives premium to a discount as the events unfolded. According to Puell, this has led to him adopting a totally bearish view to think that Bitcoin’s move towards the downside may have been beneficial.

The BTC price must not change as it appears to be entering another phase of consolidation. There are other factors that could bring volatility into the market, such as the activation of Taproot, Bitcoin’s upgrade, which should be activated during the week or at some point next week.

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This data suggests that the road to more gains in quarter four 2021 could be difficult. The macro-outlook becomes more complex. Bitcoin appeared to be reacting to Evergrande’s potential bankruptcy.

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