Bitcoin

Bitcoin holds $20K, but analysts say BTC open interest leaves room for ‘more deleveraging’

09/01/2022
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Bitcoin’s (BTC) price continues to struggle at $20,000 and repeat dips under this level have led some analysts to project a deeper downside in the short term. Earlier in the week, independent market analyst Philip Swift tweeted that the Crypto Fear & Greed Index had dropped back to back to “Extreme Fear,” reflecting softening sentiment among investors. 

On Aug 29, analytics firm Delphi Digital highlighted Bitcoin open interest hitting a new record-high and said:

“The Futures Open Interest Leverage Ratio for BTC reached its highest level ever recorded at more than 3% of BTC market cap, following the market-wide collapse on August 26th.”

According to Delphi Digital, “higher values suggest that open interest is large, relative to market size. This implies a higher risk of market squeezes, liquidation cascades or delivering events.”

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Bitcoin open interest. Source: Delphi Digital

Exactly what might catalyze such an event remains unknown, but any continuation of the current downtrend in stocks which saw the Dow and S&P 500 wrap up the fourth day of decline to end August at a loss, could continue to weigh on Bitcoin price. Data from CNBC shows the Dow closed August down 4.1% and the S&P 500 and Nasdaq closed the month with 4.2% and 4.6% losses.

Cleveland Federal Reserve President Loretta Mester also commented that she expects the benchmark interest rate to rise above 4% and she suggested that it is highly unlikely that there will be any cuts throughout the entirety of 2023. 4% is well above the Fed’s target 2.25% to 2.5% range.

Considering how crypto markets have performed since the Fed first began raising rates on July 26, 2022, and the fact that BTC and equities markets reflect a strong correlation, it wouldn’t be surprising to see a long drawn-out decline of the Bitcoin price over the coming months.

Related: Potential Bitcoin price double-bottom could spark BTC rally to $30K despite ‘extreme fear’

On the other hand, traders appear to still be bullish on the upcoming Merge. Ether (ETH) and ETH staking-related tokens have held up relatively well since bouncing from last week’s sell-off. After dropping to $1,422 on Aug. 28, Ether has gained 11.3% and trades slightly below $1,600. Lido (LDO), the largest ETH staking service, is up 12% on the day and 32% from last week’s drop to $1.55.