This is an opinion piece by Mike Ermolaev, head of public relations at the ChangeNOW exchange.
As a retail trader or someone who just got started with bitcoin not too long ago, you might be looking for clues as to what to expect with its price. A second opinion is also important for seasoned bitcoin investors to compare their own views.
Analyzing Bitcoin Futures Open Interest
Bitcoin open interest provides insight into how much money is flowing in and out of the bitcoin derivatives market. Derivatives such as bitcoin futures and perpetual swaps are used by traders to speculate on the rise or fall in the price of bitcoin without having to own the digital asset. Higher open interest for bitcoin means more traders opened positions, while lower interest means more traders closed them.
At the time of writing, open interest denominated in bitcoin had risen from 350,000 BTC to 592,000 BTC in early April 2022. A look at the bitcoin denomination can help isolate periods of increased leverage from price fluctuations.
In US dollars, the current open interest is $13.67 billion, which is relatively low, comparable to early bull market levels in January 2021 and sell lows in June 2021.
Whenever there is a large increase in open interest on a BTC basis, but not on a USD basis, it signals that the markets are gaining more exposure to BTC, but still do not expect he moves a lot.
Funding rates increase for perpetual swaps
In order to understand how most traders position themselves in the market, we can look at the funding rates used on perpetual swaps: derivative financial contracts unique to bitcoin and cryptocurrency that have no date expiration or settlement. They allow traders to use leverage – up to 100x – when betting on the price of bitcoin. A funding rate is a periodic payment made to or by a long or short trader based on the difference between the perpetual contract price and the spot price.
Generally, we can say that positive funding rates indicate that traders are taking long positions and are generally optimistic about the price rising, while negative funding rates are indicating that traders are generally taking short positions and are generally bullish. generally bearish, believing that the price will go down. Funding rates above 0.005% signal an increase in the speculative premium, a trend that is currently occurring.
Bitcoin price is above its 50-day simple moving average
Analysts like me who use technical analysis charts and models to make investment decisions note that bitcoin is currently trading above its 50-day simple moving average (SMA) – an effective trend indicator – for the first time since mid-July. This confirms that an underlying dynamic could be created.
Long-term holders see Bitcoin as an attractive risk-reward investment
Below is another chart that visualizes what long-term BTC holders think of bitcoin relative to its price. Long-term bitcoin holders are generally better at identifying the best time to buy and sell bitcoin. This is not surprising, since they have more experience in the field than newcomers who are just starting out. It is important to recognize when they are convinced that the price of the number one cryptocurrency will increase in the future.
The reserve risk chart is currently in the green zone, signifying a high level of confidence combined with a low price, making bitcoin an attractive risk/reward investment. Investors who invest during Green Reserve Risk have historically enjoyed high returns over time.
Market perceptions of various savvy market participants, who have always been smart in their investment decisions, show that they are increasingly confident about the future of bitcoin price and are willing to take on more risk of price. There is a cautious upward bias in the bitcoin derivatives markets and long-term investors seem quite confident. Bitcoin price is also showing signs of improvement based on technical indicators.
Disclaimer: This is not financial advice. All opinions, statements, estimates and projections expressed in this article are solely those of Mike Ermolaev, Public Relations Manager at ChangeNOW.
This is a guest post by Mike Ermolaev. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.