Bitcoin Dips Below $30,000 Following Overheated Futures Market
Bitcoin price dropped below the $30,000 level after the coin’s on-chain data showed signs of overheating in the futures market.
Bitcoin funding rate was highly positive yesterday
Bitcoin held around the $30,000 level very well over the past week, but the cryptocurrency has seen a decline below the mark today.
The signs that a dip was coming were apparently visible yesterday, as an analyst in a CryptoQuant post had pointed out. To be more specific, two indicators of the futures market, open interest and funding rates, had values that may have suggested an early decline in the asset.
“Open interest” is an indicator that measures the total amount of Bitcoin futures contracts that are currently open on derivatives exchanges. This metric accounts for long and short positions.
When the value of this metric increases, it means that investors are opening new contracts in the market at this time. As leverage generally increases in the sector with more positions being opened, this type of trend can make the price of the cryptocurrency more volatile.
On the other hand, the declining indicator suggests that holders are closing their positions or being liquidated by their platforms. Of course, such a trend can make the price more stable.
Now, here’s a chart that shows the trend in Bitcoin’s 30-day moving average (MA) at open over the past month:
Looks like the value of the metric has declined somewhat recently | Source: CryptoQuant
As displayed in the chart above, Bitcoin’s open interest rose to quite high values as the asset’s price bounced above the $30,000 level about a week ago. But a few days ago, the metric saw some decline as the price broke above $31,000 and then dropped again.
However, it is clear from the chart that even though these new levels the indicator fell to were notably lower than the previously observed highs, they were still much higher than the values seen just before the big spike.
These still-significant levels persisted into yesterday, meaning that the Bitcoin futures market was still potentially carrying a large amount of leverage. Based on this, it is not surprising that the coin has seen some volatility today.
The other indicator of relevance here is the “funding rate”, which tells us the periodic rate that futures traders are exchanging with each other.
When this metric has a positive value, it means that the longs are calling the shorts now and therefore bullish sentiment is more dominant in the market today. Likewise, negative values imply that a bearish mindset is shared by the majority. The chart below shows what the metric looked like yesterday.
The indicator seems to have had positive values in recent days | Source: CryptoQuant
As is visible from the chart, the Bitcoin funding rate had a very positive value yesterday, suggesting that long positions have outperformed shorts. Historically, when these green metric values track high open interest, a long squeeze has become more likely in the market.
A “squeeze” is a mass liquidation event where liquidations cascade like a waterfall. According to data from CoinGlass, significant liquidations took place during the last day and, as funding rates already foreshadowed, the majority of liquidated contracts were long.
At the time of writing, Bitcoin is trading around $29,900, up 5% over the last week.
BTC has plunged during the past day | Source: BTCUSD on TradingView
Featured Image of Maxim Hopman at Unsplash.com, Charts by TradingView.com, CryptoQuant.com