Bitcoin (BTC) has surged 70% since the beginning of the year, briefly hitting a nine-month high above $29,000. Although higher prices have revived the derivatives market, it is generally calm and the risk of price volatility due to liquidation appears to be low.
The 2021 bull market and early 2022 bear market often saw long/short squeezes. It was highly leveraged relative to the size of the market, and billions of dollars worth of positions were affected by price fluctuations. However, the leverage ratio has been declining since the beginning of the year.
“High open interest relative to market cap means the market is likely vulnerable to short squeezes and liquidation chains, resulting in higher price volatility than would otherwise be the case,” said Blockware Solutions. Blockware Solutions analysts said in their weekly newsletter.
“The medium-term trend of declining open interest/market capitalization ratio has not broken, and this provides some comfort that if prices do fall, they are unlikely to fall back to the levels at the beginning of the year.”
Market in risk-off mode
Ever since FTX, once the third largest cryptocurrency exchange and popular for trading perpetual futures, collapsed last November, the open interest/market capitalization ratio has declined.
According to Blockware Solutions, the ratio has remained low in recent times, indicating investors’ risk appetite is low.
“Bitcoin has been essentially flat over the past three weeks, but open interest has not increased, suggesting the market is still in risk-off mode,” said an analyst at Blockware Solutions. . As seen before the FTX collapse, perpetual futures typically see higher demand during periods of flat market trends, he said.
Bitcoin has been trading in a tight range between $27,000 and $29,000 since March 21, according to CoinDesk data.
｜Translation: coindesk JAPAN
｜Editing: Takayuki Masuda
| Image: Blockware Solutions, Glassnode
｜Original: Bitcoin Faces Low Risk of ‘Liquidations-Induced’ Price Volatility After 70% Surge