Bitcoin experienced a significant decline, reaching a low of $81,119 on January 30, largely influenced by a sharp spike in forced long closures in the derivatives market. The situation has raised questions about whether the market has effectively “cleansed” its leverage or is still positioned for further liquidation events.
On-Chain analyst Axel Adler Jr. highlighted a “cascade of forced closures” over the previous 24 hours, where long liquidations vastly outweighed short liquidations. His liquidation dominance oscillator, which measures the balance between long and short liquidations, showed an overwhelming 97% in favor of long positions, with the 30-day moving average increasing to 31.4%. This suggests that not only has the deleveraging pressure been unbalanced over the course of the day, but it has also become a consistent trend throughout the past month.
Traders typically examine extremes like this because liquidation flows tend to cluster over time, suggesting potential for stabilization. However, Adler approached this observation with caution, emphasizing that an “extreme” reading does not confirm that sellers have exhausted their strength. He noted, “Oscillator extremes often coincide with forced selling culmination and can lead to short-term stabilization. However, this does not serve as a reversal signal without further confirmations — to establish a sustainable ‘local bottom,’ the oscillator needs to normalize to zero or the 30-day average should decline.”
Adler identified a key condition for declaring the end of the deleveraging cycle: the liquidation imbalance must show signs of cooling rather than merely peaking.
Another crucial aspect of Adler’s analysis is that even after the significant price washout and liquidation surge, perpetual funding rates remained positive, sitting at an annualized 43.2%. While this figure is down from the 100%+ annualized extremes seen during earlier market peaks, it still indicates that traders are willing to pay to maintain long positions rather than being incentivized to short.
The dichotomy of positive funding amidst massive liquidations poses a heightened risk for further deleveraging scenarios. Adler observed that this suggests either a rapid rebuild in long exposure from traders or that the market never fully unwound its bullish leverage. He cautioned that “complete ‘derivatives capitulation’ is often marked by funding transitioning to neutral or negative territory — which has yet to take place.”
This resilience in the funding rates, despite the volatility, indicates that the market’s long demand remains intact, sustaining a precarious situation. In essence, a new bearish impulse could convert the reloaded longs into further liquidation fuel.
In summary, Adler characterized the current scenario as an intense washout that may not signal a definitive end to the deleveraging process. The charts indicate that while long positions have been heavily impacted, the overall market positioning continues to lean bullish. The significant long liquidations alongside persistently positive funding suggest that demand for long exposure is not yet diminished, and the deleveraging process may still be in progress.
At the time of his analysis, Bitcoin was trading at approximately $82,968.
