Bitcoin: Has the liquidation hunting season arrived?

According to analysts, Bitcoin is facing the possibility of a major sell-off and liquidation before it can continue its strong bullish trend. One notable figure in the market analysis community, technical analyst Willy Woo, has warned that now is not a good time to make a "paper bet" on Bitcoin. On June 2, he stated that the market is at a "golden time to hunt for liquidation due to high bets," and emphasized that Bitcoin is "waiting to eliminate bets before continuing to break through to all-time highs."

In the crypto world, "paper bet" is a term used to refer to derivatives such as futures, options, and perpetual contracts, allowing investors to bet on the price of Bitcoin without having to own the asset directly. However, according to Willy Woo, "casino hitchhikers" – speculators who only participate to profit from price fluctuations without actually investing in the underlying asset – are making the market riskier. He said that the price of Bitcoin is unlikely to rise when too many investors use leverage and bet on the market without a long-term commitment to the underlying asset.

Leverage, although it provides the opportunity for quick profits, is a double-edged sword. When investors use leverage, the market becomes overheated and prone to volatility. This is especially true when speculators are liquidated, leading to a strong downward spiral.

Market Status and Forecast for the Upcoming Liquidation

The open contract quantity (OI) of Bitcoin, also known as the value of outstanding futures contracts, reached a record high on May 23, reaching 80 billion USD. Although this number has currently dropped to 72 billion USD, the level remains very high, indicating an increase in large leverage positions in the market.

Experts believe that when OI is at such a high level, there are many speculators holding large positions through borrowing. When the spot price of Bitcoin moves against these positions, investors may be forced into liquidation, leading to a strong wave of selling, causing a rapid decline in Bitcoin's price in a short period.

The main reason why this sell-off may occur is that many investors are using excessive leverage, making the market vulnerable to strong fluctuations when there is any price correction. At the same time, Woo also pointed out that this is an ideal opportunity for investors to "hunt for liquidation," thereby pushing the price of Bitcoin higher when these leveraged positions are dismantled

Bitcoin Price Outlook

Although there are currently signals indicating that the Bitcoin market may face large sell-offs, the price of this coin in the short term still shows a certain recovery. In today's trading session, the price of Bitcoin reached a daily high of 106,450 USD, before adjusting down to nearly 105,000 USD at the time of writing. This is a slight adjustment after this coin reached its historical peak on May 22, when the price hit nearly 110,000 USD.

Although Bitcoin is currently maintaining stability around the current price level, analysts still believe that this market has strong potential in the long run. However, the market may experience stronger fluctuations if over-leveraged investors face liquidation. This could create strong volatility, increasing temporary instability in the short term.

Although the short-term outlook may face challenges, a macro factor that could support Bitcoin in the long term is the increase in M2 money supply — an important indicator of the money supply in the economy. Recently, the M2 money supply has reached an all-time high, which could create a favorable environment for risk assets such as cryptocurrencies.

The increase in the M2 money supply can not only help support the cryptocurrency market in general but also reflects a loosening in monetary policy. Investors, in the context of low-interest rates and restrictions in traditional investment channels, may seek new opportunities in riskier assets such as Bitcoin. This will help drive demand for cryptocurrencies and create momentum for the market in the future.

Overall, the Bitcoin market is in a volatile phase and may face a liquidation wave before continuing its strong bullish trend. Investors using leverage may encounter difficulties as their positions are liquidated, causing a wave of sell-offs and pushing prices down. However, in the long term, macroeconomic factors such as the increase in the M2 money supply could create positive momentum for Bitcoin and other cryptocurrencies.

Investors need to be very cautious, especially during the current volatile market phase, and closely monitor the developments of macro factors as well as the liquidation status of positions in the market.

Lilly