Bitcoin Market Euphoric, Faces Risk of Pullbacks and Leverage Washouts, Trading Firm Warns as BTC Price Nears $90K

As a seasoned crypto investor with battle-scars from previous market cycles etched deep into my digital wallet, I can’t help but feel a mix of excitement and wariness as Bitcoin (BTC) approaches the $90,000 mark. The euphoria in the market is palpable, but history has taught me that such extreme optimism often precedes a potential pullback.

With Bitcoin (BTC) prices nearing $90,000, there appears to be an overwhelming enthusiasm or overly positive sentiment spreading throughout the market, indicating that a possible price correction might occur soon.

That’s the latest analysis from Singapore-based crypto trading firm QCP Capital.

Following Bitcoin (BTC) surpassing its significant resistance level and moving beyond its prolonged range, the market seems to be filled with excitement. Additionally, the demand for perpetual funding is significantly high, while basis yields have reached their highest point in seven months.” – QCP Capital in a Telegram update.

The trading firm stated that they maintain a positive outlook regarding structural growth, but they’re also watchful for potential market corrections, particularly those stemming from excessive leverage.

According to Coinglass, the funding rates for perpetual contracts or future contracts without an expiration date have spiked to 0.056%, marking a new high since at least March.

As a crypto investor, I’ve noticed that the market is showing signs of becoming overly optimistic, with many long positions being heavily stacked. This could potentially lead to a slight pullback, causing overleveraged bulls to panic-sell their long positions. This mass selling could unwittingly intensify the downward pressure in the market. Historically, such instances of leverage washout have been frequent during bull markets, often triggering sudden, significant price drops.

A higher funding rate indicates that perpetual futures are being bought above the current market price, or spot price. Additionally, standard futures contracts on all platforms, such as the Chicago Mercantile Exchange (CME), show an annualized premium of over 15% compared to the spot price.

The premium represents the return available on the market-neutral cash and carry arbitrage strategy that involves buying the asset in the spot market while simultaneously selling a futures contract.

Historically, as stated by QCP Capital, these significant surges in what’s commonly referred to as basis yields tend not to persist for a prolonged period of time.

At the moment of reporting, Bitcoin was exchanged for approximately $88,300, marking a near 30% increase over the past week as per CoinDesk’s statistics. The price peaked at $89,622 during the nighttime trading session.

Since Donald Trump’s win in the November 5th U.S. election, there’s been a significant rise in prices that has led many traders to strongly believe this upward movement will persist. This bullish sentiment is evident on social media platform X whenever people discuss potential resistance areas for Bitcoin!