Analysts warn of a possible Bitcoin price correction as open interest in futures markets rises to new highs for 2024 while trading volumes remain subdued.

Experts have suggested that the imbalance between increasing leverage and decreasing activity could create conditions for sudden price reversals as traders begin to close long positions.

“Open interest has reached a new high this year and funding rates are at their highest since June,” said Illia Otychenko, senior analyst at CEX.IO Decipher. “But the worrying thing is the downward trend in volume. This means that fewer traders are actively participating, but the remaining traders are highly leveraged. The market will become fragile and any loss of momentum could trigger a rapid correction.”

Bitcoin experienced sharp swings overnight, reaching a high of $67,922 before falling to $65,160 in less than an hour. According to data from CoinGlass, this volatility wiped out $302.25 million in leveraged positions, with $185.9 million in long positions liquidated as the price fell.

Bitcoin has since recovered slightly and is trading at $67,120 during European trading hours, data from TradingView shows.

Otychenko noted that the Bitcoin market is very sensitive to sudden swings in sentiment due to the mismatch between open interest and volume.

“A drop in volume as leverage increases is a warning sign – it creates an environment where even small price changes can trigger liquidation cascades. If traders start locking in profits, especially on long positions, the market could quickly fall apart,” he explained.

Technical indicators further support caution. Bitcoin is testing resistance at $68,000, a level it has struggled to break through. The asset is also approaching the upper limit of the Bollinger Bands, indicating a possible pullback. Indicators such as RSI and MACD are showing bearish divergences, suggesting that the current rally may lack the momentum to sustain further upside.

RSI (Relative Strength Index) measures the speed and change of price movements to indicate whether an asset is overbought or oversold, while MACD (Moving Average Convergence Divergence) tracks momentum and trend changes by comparing moving averages to signal possible reversals.

In a note sent to DecipherValentin Fournier, analyst at BRN, highlighted the importance of institutional flows in recent market behavior.

“Institutional support remains strong, with $371 million in ETF inflows yesterday,” Fournier said. “The Fear and Greed Index rose to 73, reflecting growing confidence among market participants. However, the market is now at a critical point – either we see a breakout soon, or selling pressure could increase and force a correction.”

Bitcoin price volatility coincides with changing political sentiment.

On Polymarket, Donald Trump’s chances of winning the 2024 presidential election have increased to 58.9%, widening the gap to Kamala Harris, who stands at 40.9%. This 16-point lead reflects changing market sentiment as Election Day approaches, adding another layer of uncertainty to the market.

Experts suspect that political developments could increase Bitcoin’s volatility. “Election results bring additional risks, and investors may hedge their positions in response to changing opportunities,” Otychenko said. As Trump’s chances rise, some traders may also see the election outcome as a signal of possible political changes, leading to adjustments in their strategies.

Edited by Stacy Elliott.