Bitcoin (BTC) has sharply declined to its lowest level in over two months, as the price returned to test the support level of $84,000. This sell-off occurred amid widespread risk-averse sentiment, after Microsoft (MSFT US) shares dropped 11% due to reports of increased capital spending and cloud server service revenue falling short of expectations.
Investors are currently investigating the reasons behind the increased demand for long margin positions reaching a two-year high, despite the fact that BTC prices have dropped by up to 26% in the past 90 days. Some traders are concerned that excessive leverage could lead to forced liquidations, especially when $360 million worth of BTC futures positions were wiped out on Thursday.
Long Bitcoin orders on Bitfinex | Source: TradingView
On Bitfinex, demand for long positions has reached the highest level since November 2023, totaling 83,933 BTC. Although the nominal value of these positions amounts to $7.3 billion, borrowing costs remain below 0.01% per year, thanks to Bitfinex's margin requirements far exceeding the loan value. Many traders prefer to use margin instead of futures contracts to avoid 'holding costs,' which are currently around 5% per year for BTC futures.
The annual insurance premium for the two-month Bitcoin futures contract | Source: Laevitas.ch
Typically, monthly BTC futures trade at an annual premium of 5% to 10% compared to the spot market, due to the extended settlement period. In bullish phases, this index often exceeds the neutral threshold of 10%. The last time this happened was in early February 2025, when Bitcoin reached a price close to $103,500.
The number of long orders on Bitfinex is increasing neutrally due to the arbitrage strategy
Professional traders often apply a 'cash and carry' strategy to take advantage of the interest rate differentials between the futures market and margin trading. Therefore, the net impact of the increase in long margin positions on Bitfinex can be viewed as neutral, as the arbitrage strategy requires selling BTC futures simultaneously. Thus, the increase in margin activity should not be simply understood as a forecast of a bullish trend.
Investor caution and concerns about AI valuations
The lack of confidence in the Bitcoin investor community partly stems from concerns about overvaluation in the artificial intelligence (AI) sector. Sundar Pichai, CEO of Google, acknowledged that this field has 'irrational factors' and emphasized the enormous energy demand of the developing AI infrastructure. According to the BBC, these sky-high valuations have caused many analysts to express skepticism.
Microsoft, with a market capitalization of $3.5 trillion, saw shares plummet after announcing $625 billion in 'remaining performance obligations' – unpaid contracts. According to Fortune, about $280 billion of this is related to OpenAI, raising questions as Microsoft is both a major investor and a cloud service provider for the organization.
Gold/USD price (left) compared to Bitcoin/USD price (right), for the day | Source: TradingView
Bitcoin fell along with the strong volatility trend of gold
The drop in Bitcoin on Thursday coincided with an 8% plunge in gold prices in less than 30 minutes, although the precious metal recovered half of the decline shortly after. Eric Balchunas, a senior ETF analyst at Bloomberg, noted that the SPDR Gold Shares ETF (GLD US) recorded trading volumes exceeding $25 billion on Thursday, marking a record high.
With a total market capitalization of gold and silver reaching $43.4 trillion, concerns about a 'capital flight wave' are increasing. This indicates that investors are seeking refuge in scarce assets, although fixed bond yields remain above 3.5%.
In summary, although long positions on Bitfinex have increased significantly, on-chain data and the derivatives market have yet to provide clear evidence of a comprehensive bullish recovery for Bitcoin.
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