Bitcoin has experienced significant volatility recently, with the crypto dropping to $112,500 twice this month. Although this price movement may seem concerning, it is important to understand the dynamics behind the drop.
This drop is largely driven by leveraged positions and is unlikely to last long, given the broader market conditions.
Bitcoin investors are not responsible for the drop
Activity in the futures market strongly influences sentiment around Bitcoin, while profit and loss realization on the blockchain remained relatively moderate during the recent ATH (all-time high) formation and subsequent correction.
Open interest in Bitcoin futures contracts remains high at $67 billion, indicating a high level of leverage in the market. Leverage, while a powerful tool for profit, can exacerbate price swings, as seen in recent market movements.
During the recent sell-off, over $2.3 billion in open interest was wiped out. This represents one of the largest nominal declines, with only 23 trading days recording a larger drop. This significant unwinding highlights the speculative nature of the market, where even modest price movements can trigger the contraction of leveraged positions.
Change in Bitcoin Futures OI. Source: Glassnode
This is further supported by the fact that, in recent weeks, the Adjusted Net Realized Profit/Loss metric indicates a smoothed profit-taking activity. In previous breakout scenarios, such as during the price levels of $70,000 and $100,000 in 2024, substantial profit-taking volumes signaled strong investor activity.
At these points, the market absorbed the selling pressure from existing BTC investors. However, the last attempt at an all-time high of $122,000 in July saw lower volumes of profit-taking, suggesting a shift in market behavior.
One interpretation of this dynamic is that the market has struggled to sustain upward momentum, despite a softer sell-off from current investors. This lack of strong profit realization may point to weaker demand to absorb the supply, which could explain the current market consolidation and limited movement, despite reaching new price levels.
Adjusted Net Realized Profit/Loss of Bitcoin. Source: Glassnode
BTC price recovers
The price of Bitcoin is currently at $114,200, after recovering from the support level of $112,526 for the second time this year. This recovery is expected to continue, as the drop is primarily due to leverage-related selling. A rebound is likely, given the relative strength of Bitcoin's support at $112,526.
If Bitcoin can surpass and turn the $115,000 mark into support, the cryptocurrency may rise toward $117,261. Maintaining this support level is crucial for the continuation of the upward trend, potentially paving the way for a move toward $120,000.
Bitcoin Price Analysis. Source: TradingView
However, if Bitcoin fails to surpass $115,000 or if investors opt for more selling, the price could fall below $112,526. Such a move could take Bitcoin to $110,000 or less. This would invalidate the current bullish thesis, signaling a potential long-term bearish phase for the cryptocurrency.
The article Bitcoin Forecast: decline may be temporary was first seen on BeInCrypto Brazil.
