Anika Begay
Here’s how indicators for the Bitcoin derivatives market have changed after the latest cryptocurrency crash.
Bitcoin’s open interest and estimated leverage ratio both decreased
In a CryptoQuant Quicktake post, an analyst discussed how derivatives market metrics have recently emerged. The indicators in question are Open Interest and Estimated Leverage Ratio.
Open Interest (OI) measures the number of Bitcoin positions currently open across all derivatives exchanges. The metric includes both short and long positions.
When the value of this metric increases, it means that investors are opening new positions in the market at this time. This trend implies that the interest in speculation among investors is increasing.
On the other hand, the declining metric suggests that holders are either closing positions of their own volition or are being forcibly liquidated by their platform.
Here is a chart showing the performance of Bitcoin OI over the past few years:
Looks like the value of the metric has observed a plunge in recent days | Source: CryptoQuant
As can be seen in the chart above, Bitcoin OI has seen a sharp decline in parallel with the collapse of the cryptocurrency price. This decline is due to the volatility of a huge amount of liquidations on the market.
The indicator was valued at $16.7 billion before this crash, but it has fallen to $14.2 billion. This significant decline has brought the metric back to the same level as before, when the price reached the all-time high (ATH) at the beginning of the year.
The other indicator of interest in this case is the Estimated Leverage Ratio (ELR), which tracks the ratio of Bitcoin’s OI to the total amount of BTC deposited in the reserve of derivatives exchanges.
This indicator tells us the total amount of leverage that the average Bitcoin derivatives market user is willing to take. Below is a chart showing how the crash has changed the value of this metric.
The value of the indicator appears to have seen a sharp drawdown recently | Source: CryptoQuant
This metric also seems to have dropped in tandem with the Bitcoin crash. In particular, the ELR was at 0.199 before the price crash, but is now at 0.176.
Historically, an overly leveraged and rapidly evolving derivatives industry has led to chaos for cryptocurrency, so declines in OI and ELR have led to a calmer market.
As the quant explains,
Since the crash, the market appears to have become sufficiently deleveraged, which could lead to greater stability and pave the way for a recovery, provided other market conditions remain favorable.
BTC Price
At the time of writing, Bitcoin is trading around $56,100, up more than 9% in the last 24 hours.
The price of the coin seems to be making recovery from the crash | Source: BTCUSD on TradingView
Featured image by Dall-E, CryptoQuant.com, chart by TradingView.com
