Bitcoin sell-off imminent?
- After an impressive rally from $39k to $66k, the biggest crypto by market cap keeps consolidating above $60k
- Open Interest on Bitcoin Futures also reaching ATH, indicates imminent price drop
- More system leverage leads to a higher chance of liquidation
Below is a note on recent moves and news in Bitcoin (BTC/USD) and digital assets from Marcus Sotiriou, Sales Trader at the UK based digital asset broker GlobalBlock.
Following an impressive rally spanning prices from $39,000 to $66,000, the biggest crypto by market cap keeps consolidating above $60,000. As Open Interest on Bitcoin Futures nears an all-time-high, concern is mounting.
A bearish turn
Typically, this is a bearish signal because it indicates more system leverage which, in turn, leads to a higher chance of a liquidation event where investors have to sell and the price plummets. At the same time, the difference between the current price and the price in April, when Bitcoin recorded its previous all-time-high, is that the percentage of Open Interest holding Bitcoin as collateral has dropped from around 70% to 45%.
Increased chance of mass liquidation
There is an increased chance of mass liquidation if Bitcoin is being used as collateral. This is because the value declines in parallel to long trading positions.
Open Interest isn’t the only issue. The excitement surrounding the rise in meme coins last week, especially Shiba Inu (SHIB/USD), could lead to growth of the number of retail traders, contributing to a short-term leverage flush.
Ethereum gains recognition as a store of value
Since the ETH’s London Hard Fork took place about 3 months ago, the equivalent of $2.4 billion in Ethereum (ETH/USD) has been burned, or approx. 700,000 ETH. This gives those bullish on the second crypto more confidence in terms of price growth long-term as this ETH has been removed from circulation permanently. It also improves the crypto’s status as a store of value.