[Analysis] “Bitcoin deleveraging accelerates…possibility of a mid-cycle downturn”

An analysis has emerged that deleveraging in the Bitcoin (BTC) market is gaining pace.

On-chain analytics platform CryptoQuant said in its weekly report on the 26th (local time) that “the Bitcoin market has now entered a deleveraging phase,” adding that “the compression in the CME Bitcoin futures basis and the decline in open interest indicate that the reduction in leverage is accelerating.”

It first pointed to the CME Bitcoin futures returns indicator. CryptoQuant said, “The CME Bitcoin futures return curve has shifted lower overall compared with a year ago and late last year,” adding that “this implies weakening demand for leveraged long (buy) positions and a decline in the forward risk premium.” It continued, “This suggests that strong upside expectations are fading and that the market is shifting toward a more neutral or bearish phase.”

CryptoQuant analyzed, “Compared with the troughs of December 2018 and December 2022, the futures basis at the time turned negative, forming a downward-sloping yield curve.” It added, “That was an environment accompanied by severe stress and forced position liquidations,” while noting that “by contrast, the curve currently remains upward sloping, suggesting a gradual position reset rather than an abrupt collapse.”

It also highlighted the open interest indicator. CryptoQuant said, “CME Bitcoin futures open interest has fallen about 47% from its peak,” adding that “this is similar to the roughly 45% decline during the 2022 down cycle.” It continued, “While meaningful deleveraging is under way, the yield curve still maintains a positive (+) structure,” and added that “this lends weight to the view that the current phase is closer to a mid-cycle downturn or a stabilization period during a correction.”