Bitcoin Market Is Getting Hot
Bitcoin is holding the $16k line as many traders ponder their next move. The debate is whether $20k will be passed by the end of the year or if we’ll be left waiting another quarter or two to retest the all-time high. Bitcoin was briefly trading at $16,450 until it was rejected and brought back to $16k. The good news is that buyers are holding the price above $16k which is a good sign that previous resistance is turning into new support. At the time of writing bitcoin is trading at $16.2k which sets it up to retest $16.5k if the momentum is there.
The term “open interest” refers to the total sum of contracts that are actively open in the futures market. If the open interest is high then the number of traders betting on bitcoin price action is also high. I bring this up because as of November 13, the open interest of bitcoin futures is at an all-time high. This tells us that heightened volatility is on it’s way.
Since futures contracts offer high leverage, as high as 120x, this implicates big consequences to the person that bets and gets it wrong. It doesn’t matter which way the price swings, when it does it’s going to move like a bullet train. Positions will be liquidated and buying/selling action will be amplified.
Monthly bitcoin options contracts expire on the 4th Friday of each month. Our activity is telling us that things are heating up in the market and the upcoming $525 million options expiry is being brushed off by bulls. As long as price stays above $15.5k, the large options expiry won’t have a major impact on price.
Another metric to point out is the Market Value to Realized Value (MVRV) ratio. This indicator tracks the average profit or loss of a certain group of holders in an effort to understand whether they are in a position to sell at a profit. The 30-day MVRV ratio measures the average return on investment (ROI) of all addresses that have acquired bitcoin in the past 30 days. This metric has shot up by 18.8% which means that short-term bitcoin holders were averaging close to 20% profit on their initial investment. This can go in either two ways, they get confident and double-down or they get spooked if the market pulls back, causing a steep correction.
