Bitcoin

This On-Chain Report Hinting Towards Huge Bitcoin Price Break-Out

Written by: Qadir AK

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Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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Jan 20, 2022

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Bitcoin’s recent unimpressive price action has seen a massive decline in the number of short-term investors and trading snipers staking the cryptocurrency. 

Traders who trade the most valuable crypto in short bursts are now about to have their field day as On-chain derivatives indicators are beginning to align in sync, indicating a coming bullish season for Bitcoin. The number of open futures positions continues to rise signaling the advent of price turbulence in the market. 

Glassnode’s BTC Open Interest Analysis

On-chain analytics platform Glassnode in its recent publication announced this development. The analytics firm stated that the total amount of Perpetual Futures Open Interest leveraging the short-term volatility feature e of the crypto derivatives secure is now at an approximate all-tune high of 250,000 BTC.

The record-high 250,000 BTC open interest amount overlaps the token’s previous volatility spikes. Glassnode revealed that the previous instances of BTC open interest spike after the April 2021 record rates have paired with crucial price decision regions before bullish or bearish runs to impact Bitcoin price action which resulted in the recorded deleveraging events in the industry globally.

The Bitcoin Futures Perpetual Open Interest Indicator

In the crypto industry globally, the futures otherwise known as crypto derivatives is the obligation to acquire or dispose of an asset at a set price on or before an earmarked date.

Perpetuals on the other hand are essentially futures that do not feature an expiry date while open interests comprise already traded contracts that haven’t been liquidated by leverage offset positions.

Very high open interests indicate an overleveraged position, this simply means that the position has an excessive volume of capital to fund its trading activities and amplify possible returns from said trades. This scenario, therefore, equates to a high vulnerability in the market, the market becomes highly susceptible to liquidations and its consequent price imbalance.

Liquidation in the crypto market space refers to the direct closure of an open position, either short or long by exchanges or brokers because of the position’s margin shortage. High frequency of liquidations in short periods results in exaggerated price actions like those that BTC fielded in the crypto market in the last 12 months.

The Bitcoin futures perpetual open interest is a standalone indicator that doesn’t factor in the market’s directional sentiments, rather it indicates the amount of capital that is in circulation in the derivative sector.

However, when this indicator is paired with funding rates in perpetual futures, the market directional bias is exposed with positive funding rates indicating long positions for short bullish exposures and a negative rate implying short positions to long bullish periods.

According to glassnode, Bitcoin’s funding rate has dipped to the negative region. The fall on its own doesn’t reveal much information about the crypto’s possible price action, however, when this is coupled with record-high open interest rates, a net bearish leverage position is exposed. .

Bitcoin is now trading at the $41,970 price region fielding a 0.6% drop on the day. Its price action recently has been caged in the price region with high and low borders of $40,000 and $44,000 respectively.

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Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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