Bitcoin risks drop to $62K – Will crowded shorts fuel BTC’s rebound?

Bitcoin [BTC] extended its bearish streak, falling to a low of $65,766 before rebounding to a local high of $67,827. At press time, Bitcoin traded at $67,164, slightly down 0.09% on the daily charts, reflecting heightened downside volatility. 

Amid this prolonged market decline, investors, particularly in the futures market, have overwhelmingly exhibited a bearish bias. 

Bitcoin perp futures lean bearish 

According to Cryptorus, the market is heavily crowded with short positions. The analyst observed that BTC’s Funding Rate dropped to a low of -0.006, suggesting shorts are paying longs. 

In fact, even with the dip and bounce from $60k, the Funding Rate has remained negative, indicating bearish conviction. A prolonged stay in the negative zone indicates that derivatives are not yet convinced and still expect extended weakness. 

Therefore, most market participants have turned to shorting. This sentiment is also supported by the Long Short Ratio, which has remained below one for four consecutive days.

At the time of writing, the Long/Short Ratio was approximately 0.98, indicating that most capital in the market has flowed into short positions. A higher demand for short positions suggests that most traders have heavily invested in a continued market drop.

However, the analyst observed that an extended negative Funding Rate during consolidations has tended to appear near the bottom. This is because traders have heavily learned on the sell side.

In fact, the Taker Buy Sell Ratio fell below 1 and remained around 0.9 for four consecutive days after Bitcoin fell below $70k. 

With this ratio remaining below 1, this bearish observation is validated. Thus, bearish sentiment strongly dominates the perps market with sellers strongly closing positions.  

Is this a reversal signal, though?

In most cases, with shorts paying longs to stay shorts, especially when BTC fluctuates, another upside move could trigger further upside.

However, prevailing market conditions do not indicate an immediate trend reversal. At press time, downside momentum was very strong, as evidenced by the SARMACD.

Based on this momentum indicator, the MACD remained negative, while the SAR was above it, indicating active bearish momentum.

Thus, sellers remain in control, further pressuring an already strained market and risking a further decline in its price. In the short term, BTC is unlikely to see a trend reversal.

In the most favorable case, BTC will trade sideways, with $71k as the key resistance, particularly given that Connors RSI shows no mean-reversion signal.

On the other hand, if sellers continue to dominate the market, Bitcoin could dip below $65k with $62,383 as critical support.

Final Thoughts

• Bitcoin’s volatility persists, as BTC hovers between $65k and $67k. 
• Bitcoin’s futures are heavily skewed bearish as derivatives remain skeptical of any market rebound.