Analysis shows that the key support level for Bitcoin is around $89,200, and traders are still using leverage to buy on dips

Bitcoin has rebounded from a low of around $90,500, having previously dipped to about $89,300, testing the support level near the 50-day moving average (around $89,200). This marks the third consecutive day of Bitcoin's pullback, following a surge close to $95,000 on Monday.

Cryptocurrency trading firm Wintermute stated that the main reason for Bitcoin's decline is low trading volume, coupled with traders taking profits. Jake Ostrovskis, head of over-the-counter trading at Wintermute, said, "After an initial rise in risk appetite at the beginning of the year, the market failed to break through the key $95,000 level, leading to two days of bidirectional fluctuations, with ETF outflows dominating." Additionally, the market has been affected by the recent downward adjustments in expectations for interest rate cuts by the Federal Reserve.

According to CME FedWatch data, as of now, the probability of a rate cut at the Federal Reserve meeting on January 28 is only 11.6%, down from 15.5% a week ago and 23.5% a month ago. Derivatives positions indicate that market leverage is on the rise. Meanwhile, the funding rate for Bitcoin perpetual contracts remains at a positive value of about 0.09%, indicating that longs are paying shorts to maintain their positions. A persistently positive funding rate during the pullback suggests that traders are still using leverage to buy on dips. When prices fail to rise further, this concentrated long position structure increases the risk of long liquidations, as even a mild decline could force leveraged traders to close their positions, resulting in additional selling pressure.