Bitcoin price has slipped below $30,000 after the coin’s on-chain data showed signs of overheating in the futures market.
Bitcoin funding rate was very positive yesterday
Bitcoin had held up fairly well around the $30,000 mark for the past week, but the cryptocurrency has seen a dip below the mark today.
The signs that a drop was coming were apparently visible yesterday, as one analyst pointed out in a CryptoQuant post. More specifically, two futures market indicators, Open Interest and Funding Rates, had levels that may have predicted a decline in the asset’s value in advance.
“Open Interest” is an indicator that measures the total amount of bitcoin futures contracts currently open on derivatives exchanges. This metric takes into account both long and short positions.
When the value of this metric increases, it means that investors are opening new contracts in the market. As leverage increases in the industry in general as more positions are opened, this type of trend can cause the cryptocurrency price to become more volatile.
On the other hand, the indicator showing a decline suggests that holders are closing their positions or being liquidated from their platforms. Of course, such a trend can cause the price to become more stable.
Now here is a chart showing the trend of the Bitcoin Open Interest 30-day moving average (MA) over the last month:
It looks like the value of the metric has gone down a bit lately | Source: CryptoQuant
As shown in the chart above, bitcoin open interest spiked to quite high levels when the asset’s price jumped above $30,000 about a week ago. But a few days ago, the metric saw some decline as the price surged above $31,000 and then fell back below it.
However, what is clear from the chart is that while these new levels to which the indicator fell were well below the previously observed highs, they were still much higher than the levels recorded just before the big surge.
These still significant levels held up until yesterday, meaning the bitcoin futures market was still potentially highly leveraged. Based on that, it is not surprising that the coin has seen some volatility today.
The other relevant indicator here is the Funding Rate, which tells us about the periodic fee that traders exchange among themselves in the futures market.
When this metric has a positive value, it means that the longs are paying the shorts right now and hence bullishness is more dominant in the market at the moment. Likewise, negative values imply a declining mentality shared by the majority. The chart below shows what the metric looked like yesterday.
The indicator seems to have had positive values in the last few days | Source: CryptoQuant
As can be seen in the chart, the Bitcoin Funding Rate was very positive yesterday, suggesting that long positions outweigh short positions. When such green readings of the metric have historically been accompanied by high open interest, a long push in the market has become more likely.
A “squeeze” is a mass liquidation event where liquidations collapse like a waterfall. According to data from CoinGlass, significant liquidations have taken place over the past day, and as funding rates have indicated, most of the liquidated contracts were long contracts.
BTC price
At the time of writing, Bitcoin is trading around $29,900, up 5% over the past week.
BTC crashed last day | Source: BTCUSD on TradingView
Featured image by Maxim Hopman on Unsplash.com, charts by TradingView.com, CryptoQuant.com
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