Bitcoin soared $3,000 in one hour on December 17th, regaining $90,000 as a $120 million short position evaporated, but fell to $86,000 as a $200 million long position was liquidated, completing a $140 billion market cap change in two hours.
This movement is leveraged and the leveraged position appears to be spinning out of control. However, Glassnode's data tells a different story.
In a Dec. 17 report, the firm noted that perpetual futures open interest has declined from cycle highs, funding rates have remained neutral through the drawdown, and short-term implied volatility has compressed rather than spiked post-FOMC.
The whipsaw was not reckless leverage, but thin liquidity colliding with concentrated option positioning. The actual constraint is structural: an overhead supply between $93,000 and $120,000 combined with a December option expiration that mechanically locks the price within the range.
overhead resistance
Despite two big gains, Bitcoin prices briefly dropped below the $85,000 level by mid-December, a level last recorded nearly a year ago. This round trip left short-term holders with a cost basis of $101,500, with supply concentrated from buyers who entered near the high.
As long as prices stay below that threshold, each rally will be met with sellers trying to cut their losses, which mirrors early 2022, when any recovery attempts were limited by overhead resistance.
The loss-ridden coin rose to 6.7 million BTC, the highest level of the cycle, and has been hovering in the 6-7 million BTC range since mid-November.
Of the 23.7% of underground supply, 10.2% is held by long-term holders and 13.5% by short-term holders. This means that supply with losses from recent buyers is maturing into a long-term layer, and holders have historically been exposed to prolonged stress prior to capitulation.
Loss realization rates are rising. The supply of “loss sellers” has reached approximately 360,000 BTC, and a further drop below the true market average of $81,300 risks expanding this group.
The December 17 liquidation event was a violent expression of the underlying constraints. In other words, there are more coins sitting on their heads than there is patient capital trying to absorb them.
The spot remains an episode
Cumulative volume delta indicates periodic buy-side bursts that did not develop into sustained accumulations.
While Coinbase CVD remains relatively constructive with US-based participation, Binance and aggregate flows remain volatile. While the recent selloff has not triggered a definitive CVD expansion, it does mean that bullish buying remains tactical rather than belief-driven.
Corporate financial flows remain transitory, with sporadic large inflows from a few companies interspersed with minimal activity. The recent economic downturn has not triggered a concerted build-up of government debt, suggesting that corporate buyers remain price-sensitive.
Financial activity contributes to headline volatility, but is not a reliable structural demand.
Futures remove risk, options lock in range
A permanent future contradicts the “leverage has gotten out of control” narrative. Open interest has trended down from cycle highs, suggesting position reduction rather than new leverage, while funding rates remain subdued and hovering around neutral.
The Dec. 17 liquidation was tough not because total leverage reached dangerous levels, but because it occurred in a thinning market where modest unwindings caused prices to fluctuate wildly.
After the FOMC, implied volatility contracted on the front end, but long-term maturities remained stable, suggesting that traders aggressively reduced short-term exposures.
Despite front-end volume being compressed, the 25-delta skew remains in put territory, with traders maintaining downside protection rather than increasing it.
Option flows are dominated by put sales, followed by put purchases, indicating premium monetization in tandem with ongoing hedging. Put sellers are confident that yield creation and downside prices remain contained, and putting purchases indicate that protection persists.
Traders can comfortably harvest premiums in range-driven markets.
An important current constraint is the concentration of expiration dates. Open interest shows a high concentration of risk in the two maturities in late December, with significant volume falling on December 19th and further concentrated on December 26th.
Long expiration dates compress the positioning to a specific date and amplify its impact. At current levels, this leaves dealers with long gamma on both sides, incentivizing them to sell rallies and buy dips.
This mechanically strengthens the movement within the range and suppresses volatility. The impact will be even stronger on December 26, the biggest deadline of the year. Once that passes and the hedge is removed, the price gravity of this positioning will weaken.
Until then, the market is mechanically fixed between approximately $81,000 and $93,000, with the lower bound defined by the true market average and the upper bound defined by indirect supply and dealer hedging.
The December 17th whipsaw was a liquidity event within a structurally constrained market, not evidence of upward spiraling leverage. Futures open interest is down, funding is neutral, and short-term volatility is compressed.
What appears to be a leverage problem is supply distribution combined with option-driven gamma pinning.
