The cryptocurrency market has witnessed a considerable decline today, primarily attributed to a series of leverage liquidations rather than widespread panic selling. Analysts are interpreting this sharp pullback as a typical “liquidation drop” designed to clear excessive leverage.
Expert insights suggest that if the volume of mandatory liquidations continues to decline, the market may be approaching a stabilization phase. Axel Adler, a prominent analyst from CryptoQuant, highlighted on social media that the Bitcoin: Advanced Sentiment Index saw a notable increase between January 13-15, reaching approximately 80%, which indicated an overly optimistic outlook among traders. During this period, Bitcoin”s price approached its local peak, reaching $97,000.
However, as of today, this sentiment index has plunged to 44.9%, dipping below the neutral threshold of 50%. Adler explained that this composite indicator takes into account various factors, including volume-weighted average price (VWAP), net active volume, open positions, and the long/short spread. A decline beneath the neutral line signals a deterioration in market conditions and a less favorable risk environment.
For stability to return, Adler noted that the index needs to rise above 50% and maintain that level. Conversely, if it trends towards a 20% decrease, it could trigger a more severe market correction.
In the initial hours of today”s sell-off, over $205 million in forced liquidations occurred within just one hour. The spot oscillator surged to +97.96%, indicating that nearly all liquidations were from long positions. The rapid pace and scale of these liquidations portray a classic leverage liquidation scenario typical of an overheated market.
Analysts remain cautiously optimistic. If the volume of mandatory liquidations continues to decrease in the upcoming hours, it could signify that the liquidation process is nearing completion, potentially allowing prices to stabilize.
