Bitcoin's Price Recovery Hides the Risks of Overleveraged Long Positions

Bitcoin (BTC) has shown remarkable recovery after facing challenges last week, igniting fresh optimism among derivatives traders. However, increased bullish positioning raises concerns about the potential risks associated with overleveraged long positions.

Key Takeaways

Bitcoin has regained strength, rising over 7% in early January 2026.
Despite recent gains, market sentiment remains mixed due to negative ETF flows and weakening institutional demand.
The Taker Buy/Sell Ratio indicates strong bullish sentiment but also highlights the risks of excessive long positions among traders.
A reversal in ETF demand and the negative Coinbase premium suggest caution in the market, particularly as leveraged positions grow.

Bitcoin Derivatives Show Bullish Signs Amid Weaker Spot Demand

Bitcoin opened the year 2026 with significant upward momentum, seeing a gain of more than 7% within the first five days of January. However, a temporary correction pushed the price below $90,000 late last week. Since Sunday, Bitcoin has stabilized and returned to positive territory, primarily trading in the green with relatively low volatility. As of now, Bitcoin is priced at $91,299, reflecting a slight decrease of 0.81% in the past 24 hours.

This rebound has sparked bullish sentiment in the derivatives market. Analysis from CryptoQuant indicates that the Taker Buy/Sell Ratio rose to 1.249 recently, marking the highest level since early 2019. This ratio measures the balance of aggressive buying versus selling in the derivatives market by comparing the volume of market price buy and sell orders. A ratio above 1 signifies dominating bullish sentiment, while below 1 indicates stronger bearish sentiment.

The increase in aggressive buying activity aligns with unusually high long exposure among prominent traders. Joao Wedson, founder of Alphractal, highlighted that long positions held by larger traders have reached their highest level ever. Such a concentration of leveraged positions can heighten the risk of sudden price movements driven by liquidation.

“This partially explains the liquidity hunts performed by exchanges, which are driven by high-capital traders. Exchanges are less focused on retail traders — they are primarily interested in wealthy traders who are positioned incorrectly,” Wedson noted.

Further market indicators shed light on the growing risk associated with high long positions. Data from SoSoValue illustrated unstable ETF demand. Although there were strong inflows at the start of the month, the trend reversed with $681.01 million exiting last week. Nonetheless, ETFs attracted $187.33 million on Monday.

“With an average realized price of around $86,000, the majority of ETF inflows since the October 2025 all-time high are now at a loss. Over $6 billion has left spot Bitcoin ETFs recently, marking the highest outflow since their approval,” analyst Darkfost pointed out. “With Bitcoin liquidity sometimes remaining thin, ETF flows become increasingly important, warranting close monitoring.”

Simultaneously, the Coinbase premium has turned negative, indicating that U.S. spot buying pressure is lagging compared to global markets.

Interestingly, data indicates a significant shift in Bitcoin whale behavior. Addresses holding 1,000 to 10,000 BTC have collectively decreased by 220,000 BTC year over year, marking the fastest decline since early 2023. A similar trend occurred in late 2021 to early 2022 before prices peaked, making this development noteworthy.

Overall, the current data suggests that the market is increasingly influenced by leveraged speculation rather than spot demand. While derivatives traders are aggressively positioning for upward movements, institutional engagement through ETFs remains inconsistent, and U.S. spot buying pressure is diminishing.

This scenario leaves Bitcoin susceptible to downward volatility. An influx of long positions may quickly unwind if price momentum halts. In such conditions, even minor corrections can trigger a string of liquidations, potentially exacerbating losses until more stable demand reemerges in the market.