Is the Bitcoin (BTC) Price Rally in Danger? Ominous Overheating Signal to Watch

In 2023, Bitcoin has delivered remarkable gains, surpassing the initial recovery phase and resuming an upward trajectory. The crypto-asset’s price has been hovering a little over $34,000 as it continues to ride on the coattails of spot ETF hype.

But it is approaching the overheating zone, something that investors should pay attention to. According to CryptoQuant’s latest analysis, investors should be “cautious” and not “over-bet on their investments.

Bitcoin Approaching Overheating Zone

The open interest (OI) of Bitcoin futures has exhibited a fluctuating influence on its price, at times driving it higher and at other times serving as an indicator of price declines. Despite a prolonged decrease in the total supply of stablecoins over the past year, it is the futures market that has primarily propelled Bitcoin’s price upwards this year.

CryptoQuant’s analyst observed that the price of Bitcoin generally saw an upward trajectory coinciding with the growth in OI during the initial seven to eight months of the year. It further noted

“But nothing rises forever. Futures OI entered overheating territory in June ’23, and within two months, its price plummeted. The same thing happened in Oct ’22, when the OI was still in the overheating zone. In Nov’22, there was the FTX crisis, and there was a bigger futures liquidation than in Aug ’23.”

Recently, Bitcoin’s OI has re-entered the overheated zone alongside a surge in its price. While an abrupt downward spiral is not anticipated, caution is required moving forward, according to the analysis, which further added that investors should refrain from over-betting on investments.

In the event that Bitcoin does undergo a correction, it is anticipated to be relatively mild.

Shallow Market Corrections

Glassnode’s latest analysis reveals that the corrections experienced by Bitcoin in 2023 have been significantly shallower than in prior cycle uptrends, indicating strong investor support and a favorable influx of capital.

Furthermore, Bitcoin’s dominance in the market has continued to grow, resulting in a year-to-date increase in its market capitalization of over 110%.

Bitcoin has also appreciated by over 93% relative to gold in 2023, whilst ETH is up 39% in gold terms. The blockchain intelligence platform added that this strong performance comes amidst increasing global uncertainty, and is likely to attract the attention of traditional investors.