Analyst Warns of Dangerous Bitcoin Trap: "Don't Catch a Falling Knife!"

Bitcoin (BTC) recently fell below $90,000, its lowest level since April.

During this decline, some investors made panic sales, while others saw it as a buying opportunity and accumulated.

However, in the options market, investors aggressively added leverage despite the deep correction.

Analysts at K33 Research, evaluating this situation, said that although the Bitcoin price fell to $89,000, risk appetite increased in the futures market and investors increased their leveraged positions at a record pace despite the decline.

This situation was interpreted by analysts as a “dangerous trap” and structurally worrying.

K33 Research Head Vetle Lunde stated in the report that perpetual futures investors increased their open positions by more than 36,000 BTC, the largest weekly growth since April 2023, while funding rates rose.

At this point, Lunde likened these actions of option investors to “catching a falling knife” and warned that a harsh liquidation wave could occur if the expected rapid recovery does not come.

Lunde also noted that CME futures premiums are trading near yearly lows and the maturity structure remains tight.

This reflects the ongoing risk aversion among institutional participants, as opposed to individual investors.

Lunde warned that this type of divergence has historically been a precursor to future negative price action.

In this context, Lunde added that statistically, this worrying market structure mirrors seven similar situations in the last five years, six of which saw declines continue in the following month.

How Much Lower Can Bitcoin Go?

Lunde finally stated that the current decline is among the most severe 43-day declines since 2017, and emphasized that he does not expect a repeat of the major downturns in 2018 and 2022.

However, if the current decline repeats the two deepest declines in the last two years, the Bitcoin price could fall to $84,000 to $86,000, potentially making a bottom in that range.

However, if selling pressure continues, the decline could deepen further and could see a deeper drop towards the April lows, which is also the Strategy’s average entry price of $74,433.

*This is not investment advice.