On-Chain Data Shows Open Interest is Reset to Previous Lows in May, Indicating a Spot-Driven Market

According to data from the On-Chain Open Interest (OCI) website, interest in ethereum continued its sharp decline back into May and stayed low throughout June. The site also shows that open interest is now at an all time low for Ethereum.

The “on-chain analysis” is a market that has been in a state of volatility for some time. The market has reached its lowest point in May, and the open interest on the various exchanges has been reset to previous lows.

Over the last several weeks, the cryptocurrency market has seen some wild fluctuations. The new covid variation, Omicron, had a role in the first sell-off, driving bitcoin’s price down by more than 25%. The price is now hovering around $48k-$50k, with a total crypto market value of over 2.2 trillion dollars. 

We thought that when the price went below $60k, it would hold at a vital level of $53k, which acts as the cost-basis for short-term investors. It also has a sizable on-chain following. However, on December 3rd, the price dropped dramatically in only a few hours, liquidating more than $2 billion in BTC longs. This completely demolished our earlier hypothesis, forcing us to depend on basic macro measures and statistics. 

It was obvious that we needed to get rid of the leveraged traders. Also, reduce the big amount of open interest. In addition to this movement, the order books showed relatively little purchase activity. As a consequence, the market was unable to absorb the liquidations, causing BTC to drop below $42k. 

The recent slump in the equities market should also be taken into account when analyzing the present crypto market dynamics. No one wants to join the market in such stormy circumstances, especially as the uncertainty around Omicron grows and other nations report fresh instances. 

Though there are various variables influencing the price, such as open interest dominance and covid variations, it should be observed that the recovery period from each panic movement has been substantially quicker this year. After the original variation in March 2020, it took us 25 weeks to recover. However, it only took seven weeks to recover from the Delta variant announcement. 

As a result, we must see this drop as a correction rather than a full-fledged market meltdown. There was a fundamental change in how the world worked when governments proclaimed lockdown. In the case of the Omicron variation, however, this is not the case. The global markets have made a strong comeback, and crypto is catching up. 

While the bitcoin network’s foundations have remained unchanged, the pace of inflation is causing concern in the markets. The United States government recently stated that the inflation rate has reached a 39-year high of 6.8%. When a comparable data on the consumer price index was released in October, the price of bitcoin skyrocketed, enticing speculators to buy it as a hedge. However, it quickly reminded them of the natural outcome of higher inflation and inadequate monetary policy. 

These are the changes we’ve seen in the previous few weeks that have had a negative influence on the price of bitcoin, which has a firm grip on the whole crypto market. However, we must analyze on-chain data in order to comprehend overall market updates. So, here are a few on-chain measures that provide a macro-perspective and overall knowledge of the market: 

Cost-per-unit-of-production on a per-unit-of-production basis 

Check the on-chain cost basis statistic if you wish to invalidate bearish situations and become optimistic. This is a statistic for short-term investors, and it presently stands at $53k. BTC also needs to recover the support band. We have a short-term bear confirmation based on the data gathered on-chain if it fails to retest the bottom of the band. 

Dominance of Open Interests 

We’ve been watching the influence of the futures market on the price of Bitcoin for a few months now. The OI dominance has now returned to its earlier low in May. This suggests that spot is the primary driver of the market. The robust clean-up of leveraged traders, as well as the strong OI, is a positive omen for the future. 

Accounts Ratio (Long:Short) 

It’s crucial to think about how retail affects the markets. The number of users placing BTC longs has just surpassed the number of accounts setting shorts, bringing the long-short ratio to a new all-time high on Binance. Binance is the world’s biggest cryptocurrency exchange. This has also been reset in a significant manner after the correction. 

Rate of Funding 

The financing rate allows us to examine how market players are rewarded. In certain circumstances, its relationship with open interest causes significant market movement in either way. After the flash collapse, the financing rate became negative and has remained there for the last week. We’d want to see a prolonged period of mixed or negative funding rates, since this would indicate that perp dealers are dealing with uncertainty.

Ratio of Spent Output to Profit (SOPR) 

When attempting to comprehend the condition of the crypto market, this is a crucial measure to consider. It determines if market players are selling at a profit or at a loss. The SOPR will be bigger than one if the market is profitable. If the number is less than one, it signifies that investors are expecting to lose money. We’ve fallen below the critical threshold right now. And we need to see it rise over that one line again. 

Rate of Hash 

After the China crackdown, the bitcoin mining hash rate has recovered its prior all-time high of network hash power, completing a near-perfect recovery in such a short time period. The mining difficulty has also been changed as a result of the recent price drop. The rise in hash rate is good news for the whole network, as it demonstrates how robust bitcoin is. 

Blockware Newsletter as a source

Reserve for all miners 

The miners were the ones who started the last great sell-off. And they aren’t doing anything about it right now. Miners continue to stack more BTC and add to their reserve while bitcoin falls to new lows. Since mid-November, we’ve witnessed a significant increase in their reserve. And we want to see this tendency continue to develop and progress. 

Finally, you must analyze these measurements in order to comprehend the wider market data and position yourself appropriately. However, if Omicron instances grow at the same rate as the Delta version, we won’t be able to depend on technical or on-chain analyses. There have already been multiple examples of the new variety in different nations, including India and the United States. As a result, we must determine how quickly it will spread and if the present vaccination will be effective in combating the virus. To prevent any severe declines, bitcoin must remain above $53,000 and recoup $61,000 till then. 

Karthikeya Gutta, a crypto writer and freelance contributor for ItsBlockchain, was born and raised in India. With in-depth analysis and research, he covers many facets of the sector. His enthusiasm for blockchain and the crypto ecosystem stems from his belief that it has the potential to transform the world and benefit millions of people.

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The “on-chain analysis python” is a new on-chain data that shows open interest is reset to previous lows in May, indicating a spot-driven market.

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