Bitcoin experienced a significant price drop, falling over 4.40% in the past 24 hours amid a “long squeeze” in the perpetual futures market, according to the Brave New Coin’s Bitcoin Liquid Index. At the time of writing, Bitcoin is trading at $62,408, marking a slight 0.30% gain in the last week.

Source: BNC Bitcoin Liquid Index

This decline in Bitcoin’s value aligns with a wave of caution sweeping through global equity markets. Crypto experts are raising concerns due to expectations of another interest rate hike from the Bank of Japan (BoJ), which has historically had ripple effects across financial markets, including cryptocurrencies.

“Bitcoin perpetual futures market data shows that there was a long squeeze in recent hours, as long liquidations spiked,” CryptoQuant Head of Research Julio Moreno told The Block. A long squeeze occurs when the price of an asset declines, forcing traders with leveraged long positions to either sell or face liquidation to meet margin requirements, thereby intensifying selling pressure.

Long Squeeze Exacerbates Market Downturn

This intensified selling can further drive down prices, triggering additional margin calls and forced liquidations, amplifying the downward momentum. In the past 24 hours, a total of 67,689 traders have been liquidated, resulting in total liquidations across centralized exchanges amounting to $188.38 million, according to data from Coinglass.

Source: Coinglass

Bitcoin led the cryptocurrency market in these liquidations, with nearly $48.49 million wiped out during this period. Notably, over $40 million of these Bitcoin liquidations were attributed to long positions, highlighting the impact of the long squeeze on bullish traders.

On Sunday, CryptoQuant analysts pointed out increasing speculation in the crypto futures market as open interest—the total value of outstanding contracts—reached approximately $19.1 billion. They noted that since March 2024, open interest has exceeded $18.0 billion only six times, with each instance followed by a price decline.

Source: CryptoQuant

Open Interest Reaches Critical Levels

“The futures market shows signs of overheating, with open interest around $19.1 billion. Since March 2024, it has surpassed $18.0 billion six times, and each instance resulted in a price drop, this marks the seventh occurrence,” the analysts noted. This pattern suggests a consistent correlation between high open interest levels and subsequent price corrections in the Bitcoin market.

Source: CryptoQuant

The macroeconomic environment is also contributing to the current market dynamics. On Friday, Japan’s ruling party selected Shigeru Ishiba as its next prime minister, a decision that could signal a shift in the country’s monetary policy.

Ishiba is known to support further interest rate hikes by the BoJ, a stance that aligns with the central bank’s governor Kazuo Ueda. The anticipation of possible future rate hikes has instilled caution in global stock markets, dampening the recent optimism that had emerged following China’s latest economic stimulus measures and the U.S. Federal Reserve’s rate cut on September 18.

 

BoJ’s Monetary Policy Sparks Global Caution

Investors are particularly wary of a repeat of the yen carry trade unwind that occurred in late July. This event caused panic in financial markets and led to Bitcoin’s rapid plunge from $70,000 to below $50,000 within days. The yen carry trade involves borrowing yen at low-interest rates to invest in higher-yielding assets, and its unwinding can have significant market repercussions.

Ishiba’s appointment has led to a renewed appreciation of the yen, but Japan’s Nikkei 225 Index dropped 4.8%, marking its sharpest decline in eight weeks. This downturn in the Japanese stock market has had a ripple effect on global equities, contributing to increased market volatility.

On Monday, the S&P 500 and Dow Jones Industrial Average edged lower after the Dow had reached a record high on Friday. In contrast, China’s Shanghai Composite surged over 8%, its biggest jump since 2008, following Beijing’s new stimulus measures aimed at bolstering the economy.

Macroeconomics Fuel Bitcoin Volatility

 

The contrasting movements in global markets underscore the interconnectedness of economic policies and investor sentiment. While China’s aggressive stimulus has boosted its stock market, concerns over tightening monetary policies in Japan and potential impacts on currency valuations are causing jitters elsewhere.

In the cryptocurrency market, the heightened volatility serves as a reminder of the influence of macroeconomic factors. “The combination of leveraged positions in the futures market and global economic uncertainties is creating a perfect storm for Bitcoin volatility,” commented a market analyst.

Looking ahead, traders and investors will be closely monitoring central bank policies and their implications for both traditional and digital assets. The recurring pattern of high open interest leading to price declines suggests caution may be warranted when the futures market overheats.

In addition, the potential for further interest rate hikes by the BoJ could continue to impact global financial markets. As central banks navigate the delicate balance between stimulating growth and controlling inflation, their decisions will likely have far-reaching effects.

For Bitcoin, a convergence of factors—including market sentiment, futures market dynamics, and macroeconomic policies—is contributing to its current price trajectory. Whether this marks the beginning of a sustained downturn or a temporary correction remains to be seen.