Bitcoin Rally Pushes Crypto Market Cap Above $3 Trillion as Leverage Rises
The cryptocurrency market has surpassed $3 trillion in value for the first time since January, driven by a strong rally in Bitcoin. However, this rise also brings more leveraged trading into the market, which could trigger a sharp price swing if traders start closing their positions quickly.
According to CoinGecko data, the total crypto market has gained over $740 billion since the US Treasury announced its plan to increase buybacks of long-dated bonds last month. This growth is accompanied by a significant increase in leverage through perpetual futures, with open interest reaching almost $160 billion, the highest level since late October last year.
The rise in open interest indicates that fresh leveraged positions are being added even as short positions are being liquidated. If more short positions are forced out, the market could see another short squeeze, which can create additional upward pressure on Bitcoin and other cryptocurrencies.
Rachael Lucas, an analyst at BTC Markets, noted that a squeeze normally destroys open interest, but in this rally, positions are being replaced almost immediately. This means traders are still taking fresh risks even as some bearish traders are forced out.