Bitcoin Leverage Overheating Warning, Cascade of Liquidations if This Level Breaks

▲ Bitcoin (BTC)

As Bitcoin (BTC) continues to trade sideways between $62,000 and $71,000, leverage in the futures market has soared to dangerous levels, creating a tense calm before a potential storm.

According to crypto-focused outlet Decrypt on Feb. 16 (local time), Bitcoin traders have recently been building aggressive leveraged positions despite the downturn. Nick Ruck, director at LVRG Research, noted that the rise in retail investor activity is a typical sign of speculative overheating that often appears just before heightened volatility. In particular, the three-month futures premium on major exchanges such as Binance and OKX surged from 1.5% to 4% after the 13th, underscoring the market’s frenzied bets on a bullish rally.

This trend is further supported by a simultaneous rise in funding rates, indicating that buyers have taken firm control of the market. Coinbase CEO Brian Armstrong also stated in a Sunday tweet that users have been actively buying during the dip, with most customers’ account balances increasing compared to last December. Analysts interpret this as a sign that the crypto market is regaining risk appetite after weeks of uncertainty.

The options market is also showing clear shifts in demand. The 25-delta skew indicator, which measures demand for call options relative to protective put options, eased from -10 to -4 on the 13th, signaling a notable decline in bearish bets. Experts predict that if this improvement translates into stronger bullish conviction, it could trigger a short squeeze—rapid price increases driven by the liquidation of short positions—pushing prices higher in the short term.

However, rebounds fueled by leverage inherently carry a high risk of forced liquidations to flush out excessive positions. Ruck warned that retail investors typically enter late and suffer the greatest losses during position unwinding, adding that the current setup could lead to large-scale forced liquidations before a short-term bottom is formed. Rising indicators without strong trading volume support create a high-risk environment where sudden downturns may spark cascading liquidations, completely undermining investor confidence.

Ryan Yoon, senior analyst at Tiger Research, assessed that the market is currently standing on a dangerous line between a healthy recovery and total investor apathy. With Bitcoin trading around $68,600, down about 2.5% over the past 24 hours, investors worldwide are holding their breath to see whether the current leverage overheating will act as a trigger for final capitulation or serve as a stepping stone for a new rally.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses incurred based on it. The content should be interpreted for informational purposes only.*