The Bitcoin price has dipped below the $30,000 level after the coin’s on-chain data displayed signs of overheating in the futures market.
Bitcoin Funding Rate Was Highly Positive Yesterday
Bitcoin had been holding around the $30,000 level pretty well during the past week, but the cryptocurrency has observed a decline below the mark today.
The signs that a drop would be coming were apparently visible yesterday, as an analyst in a CryptoQuant post had pointed out. To be more specific, two futures market indicators, the open interest and funding rates, had values that may have hinted towards the asset’s decline in advance.
The “open interest” is an indicator that measures the total amount of Bitcoin futures contracts that are currently open on the derivative exchanges. This metric accounts for both long and short positions.
When the value of this metric rises, it means investors are opening new contracts on the market right now. As leverage generally increases in the sector with more positions being opened, this kind of trend can lead to the price of the cryptocurrency turning more volatile.
On the other hand, the indicator showing a decline suggests holders are closing up their positions or are getting liquidated by their platforms. Naturally, such a trend may lead to the price becoming more stable.
Now, here is a chart that shows the trend in the 30-day moving average (MA) Bitcoin open interest over the last month:
Looks like the value of the metric has declined somewhat recently | Source: CryptoQuant
As displayed in the above graph, the Bitcoin open interest rose to pretty high values as 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 went above $31,000 and then plunged below it again.
However, it’s clear from the chart that while these new levels that the indicator dropped to were notably lower than the highs observed earlier, they were still nonetheless much higher than the values seen just before the big surge came.
These still significant levels persisted until yesterday, meaning that the Bitcoin futures market was potentially still carrying a large amount of leverage. Based on this, it’s not surprising that the coin has observed some volatility today.
The other indicator of relevance here is the “funding rate,” which tells us about the periodic fee that traders on the futures market are exchanging between themselves.
When this metric has a positive value, it means the longs are paying shorts right now, and hence, bullish sentiment is more dominant in the market currently. Similarly, negative values imply a bearish mentality is shared by the majority. The below chart shows what the metric looked like yesterday.
The indicator seems to have had positive values in recent days | Source: CryptoQuant
As is visible in the graph, the Bitcoin funding rate had a very positive value yesterday, suggesting that long positions outnumbered the short ones. Historically, when such green values of the metric have accompanied high open interest, a long squeeze has become more probable 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 during the past day, and as the funding rates already foreshadowed, the majority of the contracts liquidated have been long ones.
At the time of writing, Bitcoin is trading around $29,900, up 5% in the last week.
BTC has plunged during the past day | Source: BTCUSD on TradingView
Featured image from Maxim Hopman on Unsplash.com, charts from TradingView.com, CryptoQuant.com