As 2023 nears its conclusion, Bitcoin (BTC) finds itself within a constrained trading range, struggling to maintain levels above $90,000. Singapore”s analytics firm QCP Capital highlights that the cryptocurrency is unlikely to break free from this narrow channel unless a significant shift occurs.
The firm attributes the stagnant performance to diminishing liquidity as the Christmas season approaches, alongside a reduction in institutional leverage. This combination has significantly curtailed BTC”s potential for upward movement, leaving investors with a bleak outlook for year-end price increases.
In their analysis, QCP Capital pointed out that market participants have been actively unwinding positions, leading to a notable decrease in open interest. Specifically, open positions in Bitcoin and Ethereum (ETH) futures contracts have dropped by approximately $3 billion and $2 billion, respectively.
“Bitcoin is trading in a narrow range ahead of Christmas,” the report stated, emphasizing the caution exercised by investors as they seek to minimize risk in light of the holiday season. This trend has brought about a reduced level of leverage in the market.
Furthermore, the report mentioned that the potential for sharp price fluctuations has increased due to this diminished leverage. Nevertheless, a significant obstacle remains in the form of a major options expiration scheduled for December 26, which accounts for over 50% of total open interest on the Deribit exchange. While the open interest in $85,000 put options is on the decline, the demand for $100,000 call options persists.
Although immediate upside appears limited, there is still a glimmer of hope for a year-end rally. QCP Capital also noted that tax loss harvesting may contribute to increased volatility, as investors might sell assets before December 31 to offset capital gains.
Analysts have observed that trading volume has also diminished in the current environment, leading to the possibility of sharp price reactions to relatively small sell orders. However, it is important to note that similar market conditions at year-end have historically resulted in price reversals.
In summary, unless a clear breakout occurs, the cryptocurrency market is expected to remain volatile and sideways until the year”s end. Looking ahead, liquidity may begin to recover in January, potentially reshaping the trajectory of Bitcoin and the broader cryptocurrency market.
