Bitcoin's Deleveraging Debate: Is the Market Truly Cleaned?
Bitcoin’s recent sharp slide to $81,119 on January 30 delivered a significant blow to the derivatives market. While forced long closures spiked to extreme levels, the persistence of positive funding rates paints a complex picture, leaving analysts to question if the deleveraging cycle is truly over or if further instability lies ahead.
The Cascade of Forced Liquidations
On-chain analyst Axel Adler Jr. highlighted a "cascade of forced closures" dominating the past 24 hours, with long liquidations constituting roughly 97% of the total. This intense, one-sided deleveraging pressure wasn't just a daily anomaly but a sustained pattern observed throughout the last month. In market-structure terms, this indicates that deleveraging has been heavily concentrated on long positions. While such extreme liquidation events often precede short-term market stabilization, Adler cautions that an "extreme" reading alone doesn't confirm the completion of seller exhaustion. For a truly sustainable local bottom, a normalization or decline in the 30-day average of liquidation dominance is essential, implying that the imbalance must cool rather than simply peak.
The Puzzle of Persistent Positive Funding
Adding a layer of complexity to the market narrative is the surprising resilience of Bitcoin's funding rates. Despite the heavy price washout and liquidation cascade, funding rates remained positive, hitting 43.2% annualized on the day of the drop. While lower than previous peaks, positive funding rates indicate that traders are still paying to maintain long positions, suggesting an underlying bullish sentiment or a rapid rebuilding of long exposure. This unusual scenario implies that the market may not have fully unwound its leveraged bullish positions, leaving the door open for renewed deleveraging pressure if a fresh downside impulse occurs. Adler concludes that this combination points to "incomplete deleveraging," where severe liquidations have occurred, but overall positioning remains tilted bullish, increasing the risk of subsequent liquidation waves. Until funding transitions to neutral or negative territory, the possibility of further market instability remains.
