Overleveraged Markets Delay Altseason as Liquidation Cycles Trap Traders

TLDR:

• Positive funding rates signal overcrowded long positions that trigger cascading liquidation events
• Altcoins face constant sell pressure from thin liquidity, high volatility, and token emissions
• Market makers exploit overleveraged positions by selling into panic during liquidation cascades
• Sustainable altcoin rallies require cleared leverage and bearish sentiment before genuine recovery

Altseason remains elusive as cryptocurrency markets face pressure from excessive leverage rather than retail investor absence. Market analyst Wimar highlighted how crowded long positions and positive funding rates create cyclical liquidation events. 

The pattern forces altcoins into prolonged downtrends despite periodic recovery attempts. This dynamic has trapped traders in a repetitive cycle of losses and false bottoms throughout recent weeks.

Leverage Liquidations Drive Altcoin Price Decline

Cryptocurrency analyst Wimar posted on social media platform X that overleveraged positions explain current altcoin weakness. 

Alt funding rates turned sharply positive over recent weeks. This indicates too many traders opened long positions with borrowed capital. When markets become overly concentrated on one side, even minor price dips trigger cascading liquidations.

The liquidation cascade begins when initial price drops force leveraged long positions to close automatically. Stop-loss orders activate simultaneously across the market. 

Market makers then sell into the panic, accelerating downward momentum. Spot buyers enter at perceived bottoms but face further declines as the cycle continues.

Altcoins serve as primary targets for this strategy due to structural vulnerabilities. Thin liquidity makes price manipulation easier compared to major cryptocurrencies. 

High volatility amplifies price swings in both directions. Perpetual futures contracts on most altcoins enable excessive leverage. Token unlocks and emissions create constant sell pressure that compounds the effect.

Market Reset Required Before Sustainable Rally

The current environment prevents genuine altcoin rallies from materializing. Every bounce attracts new leveraged longs seeking quick profits. 

Funding rates return to positive territory within days. Market makers then repeat the liquidation farming process. Traders find themselves caught in what appears to be endless downward price action.

Data reveals the cleansing process already underway across derivative markets. Open interest figures show declining leverage exposure. 

Funding rates have begun cooling from extreme positive levels. Liquidation spikes indicate forced position closures removing weak hands from the market. These signs point to leverage gradually exiting the system.

The paradox is that this painful process creates conditions for future gains. Sustainable alt runs require cleared leverage and bearish sentiment. Markets cannot rally meaningfully while most participants already hold long positions. 

Once leverage clears and pessimism peaks, genuine buying pressure can drive prices higher. The current phase represents necessary market cleansing rather than permanent altcoin decline. Traders should recognize forced liquidations as part of normal market cycles in volatile altcoin markets.

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Source: https://blockonomi.com/overleveraged-markets-delay-altseason-as-liquidation-cycles-trap-traders/