About $ 500 million worth of cryptocurrency futures positions were liquidated in the past 24 hours. The massive liquidation of positions took place before the price of Bitcoin (BTC) dived under $ 34,000 on January 17.

Bitcoin total liquidations. Source: Bybt.com

Why have so many positions been liquidated?

Overnight, the price of Bitcoin rose 6.7% from USD 35,500 to nearly USD 38,000. Meanwhile, the funding rate for futures has risen sharply, indicating an overloaded market.

On the major exchanges, the funding rate of the Bitcoin perpetual swap futures contract rose to about 0.07%.

Given that the average funding rate typically hovers around 0.01%, the futures market was crowded towards $ 38,000.

As such, the Bitcoin price started to decline as several large sell orders hit the market for just over $ 38,000. The overheated futures market further strengthened the correction.

Overall, $ 500 million in liquidation isn’t a big figure compared to last week, like when Bitcoin saw $ 1 billion in futures contracts liquidated on peak days.

Is the bottom of the Bitcoin near?

But the drop has not caused futures market open rates to fall, raising concerns about a bigger pullback. There are still a large number of traders betting on Bitcoin in the futures market, opening the possibility of another long squeeze.

A pseudonymous trader known as “Salsa Tekila” said that if Bitcoin falls below $ 30,000, it would enter “bear market territory.” Therefore, in the near term, it is critical for BTC to maintain USD 30,000 as a macro support area. He said:

“If we go below 30k, it’s bear market area. We would have enough underwater bag holders to hold us down for a long time. Until then I could go either way, I think. If it reclaim and hold above 40k, I think 50-60k environment is plausible. I think $ BTC being surpassed is a bias, not a trade. “

Additionally, according to CryptoQuant CEO Ki Young Ju, outstanding interest in the futures market is still booming. All the while, the on-chain signals indicating buyer demand have stagnated in recent days.

Based on the combination of the overcrowded derivatives market and the lack of buy signals, Ki wrote that the market is uncertain and it may redraw $ 30,000 again. He wrote:

“People are trading USD BTC with low leverage, interest rates are skyrocketing and the long-short ratio looks neutral. Strong on-chain buy signals that have driven this bull market have not emerged so far. $ BTC could retest 30k so I have no position in this uncertain market right now. “

Bitcoin estimated leverage on exchanges. Source: CryptoQuant

As before Cointelegraph reported, traders on Binance, the largest open-rate futures exchange, started using lower leverage over the past week. This indicates an increased level of fear in the market and the lack of certainty in the short term price development of BTC.

On the other hand, some traders remain optimistic over the medium term, stating that the current downturn from USD 40,000 levels was not only expected but also desperately needed to keep the rally from overheating.