This is an opinion editorial by Mike Ermolev, Head of Public Relations at ChangeNow Exchange.
As a retailer or someone who just started with Bitcoin a while ago, you may be looking for clues about what to expect next with its price. A second opinion is also important for experienced Bitcoin investors to compare their own views.
Analyzing Bitcoin Futures Open Interest
Bitcoin free interest provides insight into how much money is flowing into and out of the Bitcoin derivatives market. Products such as bitcoin futures and perpetual swaps are used by traders to predict whether the price of bitcoin will rise or fall without owning the digital asset. A higher Bitcoin open interest means more traders have opened positions, while a lower one means more traders have closed them.
As of writing, bitcoin-denominated open interest has increased from 350,000 BTC to 592,000 BTC in early April 2022. A look at Bitcoin face value helps distinguish periods of increased leverage from price fluctuations.
In USD terms, current open interest is $13.67 billion, which is relatively low, comparable to early bull market levels of January 2021 and June 2021.
Whenever open interest increases by a large amount on a BTC basis, but not on a USD basis, it signals that markets are taking on more BTC exposure, but don’t expect it to move much.
Funding rates rise for permanent exchanges
To understand how most traders are positioned in the market, we can look at the money rates used in perpetual swap contracts: derivative financing contracts typical of Bitcoin and cryptocurrency with no expiration date 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 to or from a trader who is long or short based on the difference between the permanent contract price and the spot price.
In general, we can say that positive funding rates indicate that traders are taking long positions and are generally bullish about the price moving up, while negative funding rates indicate that traders are generally taking short positions and believe that the price will move downwards. Fund rates above 0.005% have increased the speculative premium, a trend that is currently occurring.
Bitcoin price is above its 50-day simple moving average
Analysts like myself, who use technical analysis charts and patterns 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 ensures that the underlying momentum can build.
Long-term holders see Bitcoin as an appealing risk/reward investment
Below is another chart that visualizes how long-term BTC holders feel about Bitcoin in relation to its price. Long-term holders of Bitcoin are generally good at spotting the best time to buy and sell Bitcoin. This is not surprising, as they have more experience in the field than those who are just starting out. It is important to recognize when they are confident that the number one cryptocurrency will rise in price in the future.
The reserve risk chart is currently in the green zone, which means that low prices combined with high levels of confidence make Bitcoin an attractive risk/reward investment. Investors investing in greenbacks during periods of risk have historically enjoyed higher returns over time.
Market perceptions of various intelligent market participants, who are traditionally smart in making their investment decisions, show that they are more confident about the future of the Bitcoin price and are willing to take more price risk. There is a cautious upward bias in Bitcoin derivatives markets and long-term investors are 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 Ermolev, Head of PR at ChangeNow.
This is a guest post by Mike Ermolev. The opinions expressed are entirely their own and those of BTC Inc. Nor does Bitcoin Magazine reflect that.