Bitcoin at Crossroads: $124K or $108K After $1.7B Liquidation

The Bitcoin market underwent a significant reset over the weekend, with a forceful liquidation event erasing more than $1.6 billion in leveraged long positions. This deleveraging caused the price to retreat about 10% from its recent peak, settling near $113,000. According to data from Coinglass, the forced unwinds occurred across major venues like Binance, Bybit, and the CME, reducing the total open interest from its cycle highs. While the notional base remains sizable, the market is now thinner, potentially setting the stage for less volatile, more organic price discovery.

The liquidation heatmaps from Coinglass show dense clusters of potential liquidations both above and below the current spot price, creating key levels that traders are monitoring. This flush was primarily driven by futures markets, where over-extended longs were forced to exit. Concurrently, funding rates on perpetual contracts compressed toward neutral, indicating a reduction in speculative fervor. This cleansing of leverage, while painful for some, is often a necessary step to build a healthier foundation for the next leg of a trend.

The derivatives landscape now offers crucial clues about market sentiment. Analytics from Deribit and data from Laevitas reveal that short-term put options are trading at a premium to calls, a condition known as negative 25-delta skew. This structure signals heightened demand for downside protection and suggests that options dealers are positioned ‘short gamma’ near the current spot price. This dealer positioning can amplify intraday volatility when the price moves within these negative gamma pockets, creating whipsaw action until the market stabilizes and gamma flips positive.

Macroeconomic factors also remain a key influence at the margin. Following the Federal Reserve’s recent quarter-point rate cut, the US 10-year Treasury yield hovered around 4.1%, while the US Dollar Index (DXY) firmed. As reported by MarketWatch, these conditions—higher yields and a stronger dollar—can act as tactical headwinds for risk assets like Bitcoin, which often trades as a high-beta play. Their impact is typically episodic, but they can cap immediate upside momentum, especially when the crypto market is driven by positioning rather than a fundamental narrative.

Flows into US spot Bitcoin ETFs, tracked by Farside Investors, have been mixed. The complex experienced a rare net outflow in September before a recovery later in the week brought in $385 million. While products like iShares Bitcoin Trust (IBIT) saw inflows, others such as Fidelity Wise Origin Bitcoin Fund (FBTC) and the Grayscale Bitcoin Trust (GBTC) faced redemptions. This inconsistent inflow pattern can limit short-term momentum but leaves a medium-term bid intact if aggregate inflows resume consistently.

Analysts are now modeling two primary scenarios for Bitcoin’s trajectory into early Q4. Scenario A envisions a snap-back squeeze that could propel the price toward the $118,000 to $124,000 range. This path would be triggered by several factors: funding rates holding at or below neutral on positive trading days, a mild rebuilding of outright short positions that could fuel a short squeeze, a normalization of options skew, and several consecutive sessions of steady-to-positive net inflows into spot Bitcoin ETFs. This combination would convert the remaining open interest into fuel for a gradual ascent, with gamma eventually turning protective to dampen volatility once a higher range is established.

Conversely, Scenario B involves a second flush downward, testing the $104,000 to $108,000 support zone. This path would materialize if negative skew persists, ETF flows remain soft or negative, and macro conditions—specifically firm Treasury yields and a strong DXY—continue to pressure the market. Under this scenario, funding rates would likely slip into negative territory on down days, and implied volatility would stay elevated as dealers maintain their short gamma positions below $115,000. This would keep the market vulnerable to further downside until open interest reduces more substantially or options market dynamics shift.

Traders have a clear checklist to determine which path is materializing. A critical gauge is the basis trade, particularly on regulated venues like the CME. Data from CryptoQuant shows the annualized basis has eased from elevated mid-September levels. A sustained move toward low-teens annualized would signal carry normalization and cleaner positioning. However, a quick re-acceleration back into the high teens or above would indicate that leverage is rapidly rebuilding.

The health of the CME futures market, known for its deep liquidity and institutional participation, serves as a vital cross-check. A decline in CME basis coupled with stable open interest would suggest a healthy deleveraging without a wholesale exit. In contrast, a sharp draw in open interest would confirm a broader market reset. Furthermore, historical seasonality offers a mildly positive base rate; October, colloquially known as ‘Uptober,’ has historically delivered positive median returns for Bitcoin. While not a driver itself, this seasonal tendency could support a recovery path if the derivatives structure has indeed been cleaned up sufficiently.

The immediate future hinges on whether the recent liquidation event has neutralized enough excess leverage to allow spot prices to trade without ‘outsized reflex.’ Current metrics from Coinglass indicate that open interest, while reduced, remains large by year-to-date standards, and liquidation clusters loom within a 5-8% range. The interplay between ETF flows from Farside, skew data from Laevitas and Deribit, and macro prints will provide the clearest signals. For traders watching these dashboards, the dominant path for Bitcoin’s price will reveal itself quickly in the coming sessions.