Key takeaways:
- Over-leveraged low positions in Bitcoin between $63,000 and $66,000 have created a potential $2.6 billion bear squeeze trap.
- Negative perpetual financing rates indicate that bulls have fully deleveraged, significantly reducing the risk of loss.
Bitcoin’s (BTC) plunge to $61,100 on Friday resulted in the loss of $335 million in leveraged long positions. However, after a 21% drop in Bitcoin’s price, bulls may have set the perfect trap as negative market sentiment intensifies. Bearish positions rose sharply in the $63,000 to $66,000 range, setting the stage for a potential $2.6 billion low position.
Estimated Cumulative Bitcoin Liquidation on Major Exchanges, USD. Source: CoinGlass
The estimated liquidation as Bitcoin continues to decline in value by 8% to $57,000 from $62,000 is $1.2 billion. In contrast, a rise to $66,000 would put $2.6 billion in low positions at risk. This potential tightening could provide enough fuel to revive buyer confidence from record highs 13-day streak of net outflows from Bitcoin Exchange spot funds (ETFs).
Daily net flows of ETFs listed on the US stock exchange, USD. Source: SoSoValue
A compact net inflow of $3 million on Thursday could represent a ephemeral respite after 15 days of sales that have sucked in $5.1 billion. It is too early to say that the momentum has officially turned in the bulls’ favor. Ultimately, if bears keep leverage low and play conservatively, the actual threat of a massive squeeze may be minimal.
Bitcoin Perpetual Futures Annual Funding Rate. Source: Lightness
The neutral funding rate typically ranges from 6% to 12%, with longs paying to keep their positions open. The current negative Bitcoin futures funding rate of 2% suggests growing bear confidence. So even if Bitcoin takes some time to recover to the $66,000 level, the bulls have fully de-leveraged, reducing the risk of a downside.
Nasdaq 100 Futures (left) vs. Bitcoin/USD (right). Source: TradingView
Bitcoin has significantly underperformed the Nasdaq 100 index, but the tech sector is starting to show weakness after Broadcom (AVGO US) closed down 12.6% on Thursday, wiping $280 billion off market value. The company lowered its AI chip sales forecast for the second half of 2026, putting investors on alert.
The impact of the technology sector IPO and the sale of 32 BTC by Strategy
Other substantial names in the AI ​​sector have also felt the impact. Micron (MU US) fell 7.8%, while Arm (ARM US) fell 4.5%. With the highly anticipated IPOs of SpaceX, Anthropic, and OpenAI in mind, investors have likely opted to raise cash ahead of these offerings. Analysts say this liquidity drain has also contributed to Bitcoin’s recent weakness.
Related: The Bitcoin model used by the strategy passed the first stress test – the gray scale
Source: X/dgt10011
Jeff Park, a partner at ParaFi Capital and an advisor to Bitwise, argues that the AI ​​sector is draining money from other investments because the market is becoming a “hot ball of money” that everyone suddenly “must own.” However, Park reminds that once the AI ​​mania passes, capital will eventually return to Bitcoin because its discounted valuation will work to its advantage.
Regardless of whether Bitcoin’s weakness is due to hype in the AI ​​sector, overconfidence on the part of bears poses a significant risk whenever it detects an raise in Bitcoin ETF inflows or fear related to the recent 32 BTC sale from Strategy (MSTR US) dissipates. A return to $66,000 may seem unlikely at first glance, but a sudden low squeeze could quickly change the dynamics in the bulls’ favor.
