Bitcoin repeatedly tests the $89,200 support level, leveraged traders buy on dips, hiding the risk of liquidation

Bitcoin repeatedly oscillates near key support levels, underpinned by a dangerous combination of shrinking trading volume and leveraged positions. While institutions like Wintermute are accumulating on dips, the ongoing downward revision of the Federal Reserve’s rate cut expectations is weakening market risk appetite. This structural contradiction could trigger a chain reaction when liquidity dries up.

Support levels tested repeatedly, rebound after three consecutive days of decline

Bitcoin has been in a correction for the third consecutive day. According to the latest data, BTC rebounded from a low of $89,300 to around $90,500, with the current price at $90,518. This correction started from a high near $95,000 on Monday, representing a nearly 5% decline.

Technical significance of key support levels

The $89,200 level near the 50-day moving average has become the most critical support. Its importance lies in being a key reference for the medium-term trend—breaking below this line would signal a breakdown of the medium-term uptrend, while holding above suggests the correction remains within controllable bounds. Currently, Bitcoin is about $1,300 above this support, leaving some buffer.

Shrinking trading volume is the main driver of the correction

Wintermute OTC trading head Jake Ostrovskis pointed out that the main reasons for Bitcoin’s decline are twofold: first, low trading volume; second, traders taking profits. Data shows 24-hour trading volume at $4.298 billion, down 21.48% from the previous day. Such a significant volume drop is common at the start of the year—global market liquidity is already thin, compounded by institutional investors’ holiday休整, leading to a lack of sufficient buy-side support.

Hidden risks within market structure

ETF outflows and declining risk appetite

Although traders are buying on dips, ETF funds are continuously flowing out. This divergence reflects differing attitudes among investor types—retailers and traders are leveraging up to go long, while large institutional investors are reducing their holdings. This is generally a negative signal, as institutional investors tend to be more sensitive to macro risks.

Continued downward adjustment of Fed rate cut expectations

The macro environment is worsening. According to CME FedWatch data, the probability of a rate cut at the January 28 Fed meeting has fallen from 23.5% a month ago to 11.6% now. This indicates that market expectations for a rate cut in early 2026 are continuously diminishing. For risk assets like cryptocurrencies, the downward revision of rate cut expectations directly suppresses risk appetite, explaining why Bitcoin still faces selling pressure despite low trading volume.

Leverage traders’ trap

Funding rates remain positive, longs paying fees

Perpetual contracts’ funding rate remains around 0.09% positive, meaning long investors are paying fees to shorts to maintain their positions. During the correction, this rate stays positive, indicating traders still rely on leverage to buy on dips.

Accumulation of liquidation risk

This persistent positive funding rate combined with high leverage creates a risk structure. When prices fail to advance further, concentrated long positions face liquidation risk. Even a mild decline—say, from $90,500 down to the support at $89,200—could force some leveraged traders to close positions. Once liquidations begin, additional selling pressure will be generated, creating a self-reinforcing downward cycle.

Insights from whale behavior

Related news shows that a whale who made $96.67 million from ETH swing trading lost $3.7 million on Bitcoin longs, then chose to cut losses and switch to buying ETH. This reflects that even experienced traders are suffering losses in the current market structure, which could be a risk signal.

The complex game among market participants

Institutional accumulation on dips

Crypto trading firms like Wintermute are still actively participating. On-chain data shows Wintermute recently transferred large amounts to Binance and other exchanges, indicating institutional investors are deploying in the low-liquidity environment. Such behavior often suggests professional traders see current prices as buying opportunities.

But this may not be enough to counter macro pressures

However, whether institutional buying on dips can effectively offset the declining risk appetite driven by the Fed rate cut outlook remains uncertain. The outflow of ETF funds indicates large passive investors are reducing holdings, which could limit the impact of institutional buying.

Summary

Bitcoin is currently in a complex market structure: technically supported at $89,200, traders are buying on dips, but shrinking volume, the Fed rate cut outlook, rising leverage, and ETF outflows all increase risks. This is not a clear buy or sell signal but a cautious balancing point to watch.

The key questions are: first, whether Bitcoin can hold above the $89,200 support; second, whether trading volume can rebound effectively; third, whether the Fed’s rate cut expectations will further deteriorate. Until these factors clarify, both risks and opportunities exist in the current market, but risks may warrant more caution.