The combination of on-chain indicators and record-high leverage in the derivatives market indicate a high likelihood of increased volatility and liquidation of short positions. This is the conclusion reached by analysts at Glassnode.
The #Bitcoin market sold off again this week, seeing 6 of 7 days closing in the red.
Meanwhile, open interest in futures markets soars to new ATHs, longs are liquidated, and a possible short squeeze is developing.
Read our analysis in The Week Onchainhttps://t.co/fYetd9O6wA
– glassnode (@glassnode) January 10, 2022
Bitcoin sales in the six days after the publication of the minutes to the last meeting of the Fed led to a decrease in the activity of new market participants and an increase in the average retention period of coins.
Metrics Hodler Net Position since December 2021 indicates a higher rate of maturation of bitcoins compared to their spending. This is typical for bear markets with a lack of buying interest from retail investors and a dominance of hodlers.
Other metrics – Value Days Destroyed Multiple and Dormancy flow – formed a similar picture. As a rule, it is observed in the later stages of a macroeconomic bearish trend, often accompanied by surrender of buyers.
Analysts are not yet fully convinced that investors have already experienced all the “pain” and that the preconditions for a return to the growth trajectory have finally emerged.
Despite the relative “calmness” of on-chain indicators, there are obvious signs of speculative activity in the crypto derivatives market. For perpetual contracts, open interest (OI) reached a record 264,000 BTC. Since December 4, the indicator has jumped 42%, surpassing the previous all-time high of 258,000 BTC.
In terms of the total capitalization of the OI market, it reached 2%, which previously served as a signal of the upcoming squeeze of open positions. Long liquidations have prevailed in the market since November. In early 2022, this metric reached 69% – the highest value since the market crash in May 2021.
Given the prevalence of short positions at the moment, such a combination of metrics indicates a high probability of a local upward reversal.
As a reminder, the analysis of bitcoin futures showed that a breakdown of $ 45,500 is required to resume the uptrend.
Earlier, economist Alex Kruger allowed Bitcoin to fall below $ 40,000 amid high inflation.