- The CVD showed that shorts outperformed longs, but that could be great for the price.
- Falling open interest and high volatility at this point advise caution.
Bitcoins [BTC] The rise from $60,731 to $63,049 did not stop traders from opening short contracts, AMBCrypto confirmed. However, historically speaking, a high number of short positions could have a positive impact on the price of BTC.
SignalQuant, an on-chain analyst, also agreed with our point of view. The analyst had published his thoughts on the topic on CryptoQuant. In the post, SignalQuant took into account the Taker Buy/Sell Cumulative Volume Delta (CVD).
They say it's recovery time
Unlike the Spot CVD, the Taker Buy/Sell CVD tracks activity in the derivatives market. For those who don't know it, it shows the difference between long and short positions.
The green area (as shown below) suggests that the shorts have long been exceeded. However, at press time, the metric was in the reading range, suggesting that short positions were dominant.
Source: CryptoQuant
The author concluded the analysis by stating that
“However, the historical pattern shows that Bitcoin price either moves sideways or rebounds strongly after a period of prevailing market shorts.”
However, there was another twist in Bitcoin’s situation. This time it was the Open Interest (OI). OI is the number of outstanding contracts in the futures market.
Some time ago, AMBCrypto reported that OI was one of the main catalysts that triggered BTC's rise to $73,000. At press time, data from Glassnode shows that OI has declined.
This suggests that traders are closing their previously open contracts. If we assume a situation similar to that during the 2021 bull cycle, Bitcoin's correction may not be over yet.
Source: Glassnode
The other is against it
If this is the case, the price of Bitcoin could fall as low as $58,000. Despite the recent decline, BTC’s year-to-date (YTD) performance increased by 42.60%.
However, a further drop compared to the editorial level could cause this number to fall. Should the price of Bitcoin decline, it may not take into account how past cycles have played out.
For example, as the coin approached the halving in 2016, the uptrend at the time broke. A similar scenario occurred during the third halving in 2020.
Additionally, AMBCrypto evaluated the realized volatility. By definition, realized volatility looks at the returns that a cycle has produced compared to events in the past.
The result indicates whether trading BTC is risky or not. Low values of realized volatility mean that it may not be risky to buy or sell Bitcoin.
Source: Glassnode
Realistic or not, here is the market cap of BTC in ETH calculations
However, at press time, one-week realized volatility was 60.6%, indicating a high-risk period. Therefore, traders may be better off avoiding opening BTC contracts at this time.
As things stand, prices could swing in either direction and high-leverage bets could be massively liquidated. Furthermore, the value of BTC is more likely to decline again before a significant recovery occurs.
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