Bitcoin: Are bears making a comeback?

• The bearish divergence between BTC’s price and its Open Interest suggested the re-emergence of BTC bears.
• As BTC’s price lingered in a tight range, the count of profitable transactions dropped. 

A steady decline in Bitcoin’s [BTC] value in the last week, while its Open Interest surged, signaled the return of BTC bears into the market, pseudonymous CryptoQuant analyst Abramchart found in a new report. 

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Open Interest is a crucial metric in BTC’s derivatives market as it tracks the total number of outstanding futures and options contracts that market participants hold at a given point in time. As this grows alongside BTC’s price, as per Abramchart, it indicates that,

“Bulls have been dominating the derivatives market.” 

However, a bearish divergence was created in a situation where BTC’s price falls during its Open Interest rallies, suggesting a potential for future price volatility. 

Source: CryptoQuant

In the current market, BTC traders may be opening new positions to hedge against potential further downsides in price. They might be anticipating a continuation of the downward trend and seeking protection by taking short positions or purchasing put options.

It is also possible that some BTC traders might be expecting a price reversal or bounce following the fall in the asset’s value, causing them to open new long positions or buy call options to profit from a potential recovery. This contrarian trading activity could have also contributed to the increased open interest.

More traders are placing bets in favor of a price rally

A closer assessment of BTC’s performance on-chain revealed that more bets were being placed in favor of a BTC price rebound. According to data from CryptoQuant, funding rates for the leading coin have been markedly positive since mid-May. 

According to the data provider, positive funding rates indicate that long-position traders are dominant and are willing to pay funding to short traders. This suggests bullish market sentiment and is often followed by a positive price correction. 

Source: CryptoQuant

Also, BTC’s exchange reserves continued to decline. In the last week, this has fallen by about 3%. Since 2 May, BTC’s exchange reserves have dropped by 7%.

The steady decline in the amount of BTC sent to exchanges showed fewer BTC sell-offs occurred in the last two months. This has been the case amid price fluctuations between the $30,000 and $31,000 range. 

Source: CryptoQuant

Read Bitcoin’s [BTC] Price Prediction 2023-2024

While fewer BTC sell-offs have taken place, it is important to note that the ratio of BTC daily on-chain transaction volume in loss has now exceeded those that returned profit.

According to data from Santiment, the ratio of BTC’s daily on-chain transaction volume in profit to loss was 0.59% at press time. It has trended downwards since the beginning of Q3, suggesting a decline in the number of BTC transactions that return a profit. 

Source: Santiment