Bitcoin faces derivative pressure : Is Q4 breakout at risk?

BTC has reclaimed the $63K range, fueled by a short squeeze, sparking market anticipation.
Yet, a substantial breakout remains unlikely.

The market is buzzing with anticipation as Bitcoin [BTC] reclaims the critical $63K mark. BTC was trading at $63,413 at press time, signaling the potential for a strong Q4 breakout. 

This recovery follows a brief bout of volatility caused by external factors. Now, stakeholders appear to have regained control of the market, positioning Bitcoin for its next big move. 

Yet, concerns loom as BTC remains susceptible to pressures from the derivative market, which can expose it to sudden swings, thwarting any attempts at a bullish reversal.

BTC grapples with increasing speculative control

Luckily for BTC, the speculative dominance remains low at 2.5%, keeping its long-term outlook relatively stable. 

However, there is a growing trend of traders looking to short Bitcoin over shorter timeframes. 

If this trend continues to build, it could cause BTC to be excessively influenced by derivative instruments, undermining hopes of pushing the price above $100K by next year.

Interestingly, when BTC hit its ATH of $73K in March, open interest (OI) surged past the 30-billion mark for the first time, reaching a staggering $36.44 billion.

Just three months later, on July 28, OI climbed to an ATH of $37.22 billion, which overheated the market and sent BTC back down to $54K within just a week.

The accompanying long red candles on the daily chart vividly depicted the scale of losses incurred during that cycle. Currently, OI is increasing at a similar pace, resting at $34.33 billion at press time. 

According to AMBCrypto, this trend could signal a reversal of the cycle by pushing investors into a state of extreme greed and indicating the risk of market overheating.

Shorts resurgence poses a serious threat

The last 24 hours have seen a significant wave of short liquidations, hitting a 100% rate on the Bitfinex exchange while Bitcoin tested the $63K level.

This suggests that the recent rise in price may have come from short positions closing, forcing traders to buy back BTC. Typically, this sudden spike in demand often leads to a near-term price correction.

While this situation signals a bullish trend with long positions dominating the derivative market, the likelihood of converting the near-term correction ($63K) into a long-term reversal ($75K) remains elusive.

This concern is heightened by the expected resurgence of short positions, which seems imminent given the overextended OI levels.

Read Bitcoin’s [BTC] Price Prediction 2024–2025

In essence, Bitcoin finds itself in a vulnerable state. If it succumbs to derivative pressure – which seems likely – it may encounter rejection near $64K, reminiscent of the August rally.

The rising number of traders shorting BTC over short timeframes threatens the potential for $64K to flip to support. This necessitates careful monitoring of the derivative space.