- The bearish divergence between the price of BTC and its Open Interest suggested the re-emergence of BTC bears.
- As the price of BTC remained within a tight range, the number of profitable trades declined.
Bitcoin’s steady decline [BTC] value over the past week as Open Interest surged signaled the return of BTC bears in the market, pseudonymous CryptoQuant analyst Abramchart found in a new report.
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Open Interest is a crucial metric in the BTC derivatives market, as it tracks the total number of outstanding futures and options contracts held by market participants at any given time. As this grows along with the price of BTC, according to Abramchart, it indicates that,
“Bulls dominate the derivatives market.”
However, a bearish divergence emerged in a situation where the price of BTC falls during its Open Interest rallies, indicating a potential for future price volatility.
Source: CryptoQuant
In the current market, BTC traders can open new positions to hedge against possible further price drops. They may be anticipating a continuation of the downtrend and seek protection by taking short positions or buying put options.
It is also possible that some BTC traders expect a price reversal or rebound after the fall in the value of the asset, leading them to open new long positions or buy call options to take advantage of a possible recovery. This contrarian trading activity could also have contributed to the increased open interest.
More traders are placing bets in favor of a price rally
A closer assessment of BTC’s performance on the chain revealed that more bets were placed in favor of a BTC price recovery. According to data from CryptoQuantfunding rates for the leading currency have been clearly positive since mid-May.
According to the data provider, positive funding rates indicate that traders with long positions are dominant and willing to pay funding to short traders. This indicates bullish market sentiment and is often followed by a positive price correction.
Source: CryptoQuant
BTC’s foreign exchange reserves also continued to decline. In the past week this has fallen by about 3%. Since May 2, BTC foreign exchange reserves are down 7%.
The steady decline in the amount of BTC sent to exchanges showed that there has been less BTC sell-off over the past two months. This was the case with price swings between $30,000 and $31,000.
Source: CryptoQuant
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While there have been fewer BTC sell-offs, it is important to note that the ratio of BTC daily on-chain transaction volume in losses is now greater than those that yielded profits.
According to data from Sanitation, the ratio of BTC’s daily on-chain transaction volume to profit and loss was 0.59% at the time of going to press. It has been on a downward trend since the beginning of the third quarter, suggesting a decrease in the number of BTC transactions that yield profits.
Source: Sentiment