The combination of rising leverage in Bitcoin (BTC), derivatives and the lowest levels volatility in over a year keeps traders on edge for an explosive move in either direction.
According to a report by crypto researcher Arcane Research, the signal from the derivatives markets comes after open interest for bitcoin futures across all exchanges has reached a level never seen since November.
They believe it is December’s “boring” market that has made leverage attractive to traders who rely on volatility to make profits.
The report stated that the total open interest in Bitcoin perpetual Futures is at its highest level since November. Additionally, leverage in one the stablecoin-margined futures contracts on Binance has more than doubled since December 5.
Rising leverage and lower volatility over the last month indicate that the market is “ripe for a move”, Arcane’s report stated. He also noted that a bullish short squeeze “seems plausible” due to “neutral or slightly below neutral” funding rates within the bitcoin futures markets.
The researchers cautioned that the volatility burst may also be a negative move due to the current technical setup of the bitcoin chart. “[…] longs could bleed if there is a push below current tight consolidation range,” said the report.
According to Bloomberg on Tuesday, lower volatility could prove to be the “most interesting outcome for price action in crypto market in 2022,” according to an analyst note from Bespoke Investment Group.
JJ Kinahan, TD Ameritrade Chief Marketing Strategist, commented in the same article that crypto’s volatility was a problem for investors. He explained that crypto is hard to use as a long-term investment play if it has such high volatility.
According to a market strategist, “It makes people too nervous or too nervous not to be involved in it, so the more stability that a product like this starts to see, then the wider the audience it attracts.”
BTC was at USD 46 609 at 15:04 UTC. This is almost 2% lower than the previous 24 hours and 2% less than the previous 7 days.
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