Bitcoin Market Fluctuation Analysis: Liquidations, Funding Rate, and Institutional Demand

Recently, the price of Bitcoin has experienced significant Fluctuation, repeatedly testing the resistance level of 24200 to 24300 dollars without success. Behind this substantial price Fluctuation in the short term, multiple factors are at play, mainly including a series of liquidations, high funding rate, a slowdown in institutional capital inflows, and healthy market adjustments.

On December 20, Bitcoin experienced a significant pullback near $24,295. At that time, the exchange heatmap showed a buildup of sell orders above $24,000, indicating the arrival of the pullback. Subsequently, within 17 hours, the price of Bitcoin fell to a minimum of $21,815, a drop of 10%. Behind this fluctuation was a series of liquidations in major futures exchanges.

The standard leverage ratio in the futures market can be as high as 100 times, meaning that investors can establish a position of $100,000 with $1,000. The higher the leverage, the greater the liquidation risk. On December 21, when Bitcoin fell below $22,000, long contracts worth hundreds of millions of dollars were liquidated. Data shows that $474 million in futures contracts were liquidated within 4 hours.

Large-scale liquidations can trigger severe fluctuations as they force traders to close positions in a short period. In the market on December 21, holders of long contracts experienced massive liquidations, leading to a decline in Bitcoin prices.

The funding rate is an important indicator for assessing the bias of the futures market. From December 20 to 21, the Bitcoin funding rate reached as high as 0.1%, indicating that going long on Bitcoin has become a crowded trade. A high funding rate will bring additional cost pressure to traders.

Some analysts point out that the slowdown in institutional fund inflows may increase the risk of Bitcoin correction. Throughout 2020, institutional investors have been the main driving force behind the rise of Bitcoin. When the demand from the largest buyers weakens, the possibility of a deep correction increases.

However, on-chain analysts indicate that even if a pullback occurs, its duration may be short. Strong buying demand is expected to quickly offset the impact of the pullback. The positive trend at the macro level is that Bitcoin outflows from exchanges are decreasing, while stablecoin reserves are increasing, indicating that active selling by large holders may be decreasing, while cautious capital is beginning to re-enter the cryptocurrency market.

In the short term, institutional demand remains a key factor. The premium of a certain Bitcoin trust fund reached 41%, reflecting strong demand from institutional investors for Bitcoin. As long as this premium remains high, the risk of a significant correction in Bitcoin due to a sharp decline in institutional demand is relatively low.

Overall, although the Bitcoin market is experiencing significant fluctuations in the short term, institutional demand remains strong and the market fundamentals stay robust. Investors need to closely monitor liquidation risks, funding rate changes, and the flow of institutional funds to better grasp market trends.