Crypto leverage hits yearly high – Is a bullish Q4 reset coming?

As the market approaches Q4, one divergence stands out as a potential setup for crypto’s next leg.

At the current market level, high-cap crypto assets have held relatively well despite the Fed rate hike, keeping the total crypto market cap around $2.7 trillion. However, on-chain data shows that the pressure for a short-term pullback could be building.

To begin with, speculative capital is ramping up. As can be seen in the chart below, the leverage in the crypto market has reached the highest level since the 10th of October. Despite this, traders continue to take leveraged positions, with the Machi brothers, for instance, increasing their position to $131 million. 

The key takeaway? Traders are betting on further upside, which shows growing confidence in crypto.

However, this is where the divergence starts to show. The TD Sequential has been incredibly accurate on Bitcoin’s [BTC] 4-hour chart. The indicator’s recent buy signal was issued before the 8.5% rebound seen over the past few days. But now, the signal has flipped and issued a sell signal. This means that short-term bullish momentum is likely to be capped, with profits being taken ahead of the next leg higher.

Notably, more than $100 million in sell orders already exist around the current price range of Bitcoin. This indicates that sellers are ready to exit at these levels, which may limit further gains for BTC. As a result, a long squeeze of leveraged positions is likely to occur, attracting new buyers of BTC, thus creating a bull trap.