Bitcoin coin leverage trading volume decreases by 30%, laying the foundation for a bullish rebound

In mid-January, an important signal caught the attention of market analysts. According to CryptoQuant data, open interest in Bitcoin derivatives markets has decreased by approximately 30% since October last year, indicating that excessive leveraged positions in coins are being unwound. Currently, Bitcoin’s price remains in the $89,460 range with a 24-hour increase of 2.38%, and this shrinking of coin leverage signals is interpreted as the market transitioning into a new phase.

The Meaning of Open Interest Reduction - A Signal of Liquidation

The significant decrease in Bitcoin’s open interest from a record high of $15 billion on October 6 last year is not just a decline in trading volume. Analysts view this “leverage reduction signal” as a natural process of unwinding excessive positions accumulated in the market. Historically, a sharp decline in Bitcoin coin leverage has signaled important market lows and has repeatedly led to bullish recoveries. While the current downward trend in open interest is seen as a positive sign that the market structure is building a more solid foundation for upward movement, it could also indicate a more severe long-term correction if Bitcoin prices continue to fall, warranting cautious monitoring.

The Role of Short Squeezes and Spot Buying

The decrease in open interest accompanying price increases reveals specific trading dynamics. A “short squeeze” phenomenon is observed, where short positions using coin leverage are systematically being liquidated. This short liquidation benefits Bitcoin technically, as the current price rise is driven more by institutional and retail spot buying rather than excessive coin leverage positions, suggesting a higher quality of upward momentum. This indicates a more sustainable upward structure rather than a simple technical rebound.

Limitations of the Derivatives Market Structure

However, specialized data analysis firm Greeks Live offers a more cautious assessment of the current market. They point out that the trading structure of the derivatives market has not yet entered a fundamentally strong bullish phase, and the current reactions are more akin to passive responses to sudden price movements. This suggests that Bitcoin coin leverage markets have not yet fully transitioned into a new cycle, and investors should consider the underlying structural weaknesses behind the seemingly positive signal of decreasing open interest.