Bitcoin falls below $30,000 after overheated futures market
Bitcoin price has dipped below the $30,000 level 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 around the $30,000 level pretty well for the past week, but the cryptocurrency has observed a dip below the mark today.
The signs that a drop would come were apparently visible yesterday, as an analyst in a CryptoQuant post had pointed out. To be more specific, two futures market indicators, the open rate and funding rates, had values that may have hinted at the asset’s decline beforehand.
The “open interest” is an indicator that measures the total number of Bitcoin futures contracts currently open on the derivatives exchanges. This calculation accounts for both long and short positions.
When the value of this metric rises, it means that investors are opening new contracts in the market right now. As leverage generally increases in the sector with more positions being opened, this type of trend can cause the price of the cryptocurrency to become more volatile.
On the other hand, the indicator showing a decline suggests that holders are closing their positions or being liquidated by their platforms. Naturally, such a trend can lead to the price becoming more stable.
Now, here’s a chart showing the trend in the 30-day moving average (MA) Bitcoin open interest over the past month:
Looks like the value of the metric has declined somewhat recently | Source: CryptoQuant
As shown in the graph above, Bitcoin open interest rose to quite high values when the asset’s price jumped above the $30,000 level about a week back. But a few days ago, the metric registered some decline as the price crossed $31,000 and then plunged below it again.
However, it is clear from the chart that although these new levels to which the indicator fell were significantly lower than the highs observed earlier, they were still much higher than the values seen just before the big increase.
These still significant levels persisted into yesterday, meaning the Bitcoin futures market potentially still had a large amount of leverage. Based on this, it is not surprising that the coin has observed some volatility today.
The other indicator that is relevant here is the “funding rate”, which tells us about the periodic fee that traders in the futures market exchange between themselves.
When this metric has a positive value, it means longs are paying shorts right now, and therefore bullish sentiment is more dominant in the market at the moment. Likewise, negative values imply a bearish mentality shared by the majority. The chart below shows how the calculation looked yesterday.
The indicator seems to have had positive values in recent days | Source: CryptoQuant
As can be seen in the graph, the Bitcoin funding rate had a very positive value yesterday, indicating that long positions exceeded the short ones. Historically, when such green values of the metric have followed high open interest, a long squeeze has become more likely in the market.
A “squeeze” is a mass liquidation event where liquidations cascade together like a waterfall. According to data from CoinGlass, significant liquidations have occurred over the past 24 hours, and as funding rates have already foreshadowed, the majority of contracts liquidated have been long.
BTC price
At the time of writing, Bitcoin is trading around $29,900, up 5% in the past week.
BTC has plunged during the past day | Source: BTCUSD on TradingView
Featured image from Maxim Hopman at Unsplash.com, Charts from TradingView.com, CryptoQuant.com
