Bitcoin price liquidation risk increases as BTC struggles to reclaim $18K

Bitcoin (BTC) price had a mixed reaction on Dec. 9 after the November report on United States producer prices showed a 7.4% increase versus 2021. The data suggested that wholesale costs continued to rise and inflation may last longer than investors had previously believed. Oil prices are also still a focus for investors, with crude WTI hitting a new yearly low at $71.10 on Dec. 8. 

The United States Dollar Index (DXY), a measure of the dollar’s strength against a basket of top foreign currencies, sustained the 104.50 level, but the index traded at 104.10, a 5-month low on Dec. 4. This signals low confidence in the U.S. Federal Reserve’s ability to curb inflation without causing a significant recession.

Trader gutsareon noted that the choppy activity caused leverage longs and shorts to be liquidated, but it was followed by a failed tentative dump below $17,050.

#BTC

good study case

first late shorts got taken out on the push..then late longs on the flush…then longs again on the PPI number…then shorts again…then a “unusual” low with little to no change in OI

rollercoaster pic.twitter.com/Qju1eOuNMX

— Peter (@gutsareon) December 9, 2022

According to the analysis, the open interest stagnation on futures contracts indicated low confidence from bears.

Regulatory uncertainty could have played a key role in limiting Bitcoin’s upside. On Dec. 8, the United States Securities and Exchange Commission (SEC) issued new guidance that could see publicly traded companies disclose their exposure to crypto assets.

The SEC’s Division of Corporation Finance said that the recent crisis in the crypto asset industry has “caused widespread disruption” and that U.S. companies might have disclosure obligations under federal securities laws to disclose whether these events could impact their business.

Let’s look at derivatives metrics to understand better how professional traders are positioned in the current market conditions.

Bitcoin margin longs faced a drastic increase

Margin markets provide insight into how professional traders are positioned because it allows investors to borrow cryptocurrency to leverage their positions.

For example, one can increase exposure by borrowing stablecoins to buy Bitcoin. On the other hand, Bitcoin borrowers can only short the cryptocurrency as they bet on its price declining. Unlike futures contracts, the balance between margin longs and shorts isn’t always matched.

The above chart…