Will Bitcoin Volatility Continue? These Metrics Say Yes
August 17 2023 - 5:00PM
NEWSBTC
Bitcoin has observed some sharp price action today, and if data of
these metrics is to go by, the asset may not be done being volatile
just yet. Bitcoin’s Open Interest And Leverage Ratio Have Remained
High As explained by an analyst in a CryptoQuant post, some metrics
are forming a pattern that can lead to more volatility in the
cryptocurrency’s price. These indicators are the open interest and
the estimated leverage ratio. The “open interest” refers to the
total amount of Bitcoin futures contracts that are open on all
derivative exchanges. An increase in this metric suggests that the
investors are opening more positions on the futures market right
now, while a decrease implies some of them are closing their
positions, or are getting liquidated. The other metric of interest
here, the “estimated leverage ratio,” keeps track of the ratio
between the open interest and the derivative exchange reserve (that
is, the total amount of Bitcoin sitting in the wallets of these
derivative platforms). What this metric tells us is the amount of
leverage that futures users are opting for on average. High
leverage can significantly increase the risk of a large number of
contracts being liquidated, so whenever this metric has a high
value, the market can become more probable to show high volatility
due to violent liquidation events. Related Reading: Bitcoin Plunges
To $28,500, Will This Historical Support Hold Again? Now, here is a
chart that shows the trend in these two Bitcoin indicators over the
past few days: Looks like both these metrics have observed high
values in recent days | Source: CryptoQuant As displayed in the
above graph, the Bitcoin open interest and estimated leverage ratio
had both been at relatively high values right before the plunge
that the asset saw in the past 24 hours. In this sharp price
plummet, the futures market naturally observed a high amount of
liquidations, leading to the open interest registering some
decrease. The metric, however, didn’t actually see that much of a
cool down despite these liquidations, and it has now already
reached back to the same levels it was at before the volatility.
This would suggest that the futures market users have opened new
positions since the mass liquidation event. While the open interest
had gone down in this event, albeit briefly, the leverage ratio
actually hadn’t budged even that much. Related Reading: Are Bitcoin
Whales Selling? This Metric May Suggest So Rather, the indicator
has only been going up, implying that the users opening up the new
futures contracts are only opting for higher and higher amounts of
leverage. Because of the open interest rebounding and the leverage
ratio only trending higher, it would appear like a reasonable
possibility that the Bitcoin price would observe more volatility in
the near future. Such volatility can take the coin in either
direction, but generally, the side of the market with the less
amount of contracts is the more probable one. In the chart, the
data for the “funding rates” is attached, which basically tells us
whether the longs or the shorts are dominant in the futures market
currently. The funding rates had been positive in the latest
futures market overheat, as well as in the one seen earlier in the
month, but following today’s long liquidations, the metric has
turned negative. This may suggest that a liquidation event
involving the shorts is more likely to happen next. BTC Price At
the time of writing, Bitcoin is trading around $28,500, down 3% in
the last week. BTC has plunged during the past 24 hours | Source:
BTCUSD on TradingView Featured image from Kanchanara on
Unsplash.com, charts from TradingView.com, CryptoQuant.com
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