Bitcoin's Leverage Surge Sparks Volatility Fears

Bitcoin's leverage has reached a critical level, raising concerns about potential market instability and increased volatility. As traders borrow capital to bet on Bitcoin's direction, the risk of large-scale liquidations grows, which could significantly impact the cryptocurrency's price trajectory.

Recent data from leveraged traders' sentiment charts reveals a sharp increase in leveraged positions, with the sentiment index now holding above 2.0. This level indicates that traders are heavily exposed to leverage, a condition historically linked to heightened volatility and mass liquidations. Previous spikes in this metric have often preceded forced long liquidations, causing rapid price declines.

Bitcoin's recent rally aligns with the surge in leverage, reinforcing the pattern of leverage-driven price movements. Past sentiment peaks have sometimes marked local bottoms due to seller exhaustion. However, the current trend points to a higher chance of long squeezes. If overleveraged long positions unwind, Bitcoin could face sharp corrections, making this a critical time for traders in an unstable market.

A look at Bitcoin's leveraged trader sentiment over the past two years shows a clear correlation between extreme sentiment readings and major market reversals. Spikes in the sentiment index have often preceded significant downturns. This was seen in mid-2023 and late 2024 when excessive leverage led to major liquidations. The early 2024 surge in sentiment aligned with Bitcoin's breakout rally. However, similar conditions in past cycles led to aggressive long squeezes. The sentiment index is now near 2.0, a level that has previously caused either consolidation or sharp corrections.

Bitcoin's recent downturn to $91,614 coincides with weakening momentum, as key technical indicators suggest potential downside risks. At the time of writing, the RSI stood at 34.24, approaching oversold territory, signaling intensifying selling pressure. Meanwhile, the OBV remained in a downward trend, indicating declining buying interest—a concerning sign for bullish continuation.

This scenario aligns with the broader context of excessive leverage in the market. If long traders start unwinding their positions due to liquidations, Bitcoin could face a sharper correction and test lower support levels. However, if BTC stabilizes and the RSI rebounds, a relief rally could be on the horizon.