Quant Explains How Bitcoin Derivatives Data Can Be Used For Trading

Quant explained how data from Bitcoin derivatives indicators such as open interest and liquidation can be used as a short-term trading tool.

Bitcoin derivatives market data as a tool for short-term trading

As a CryptoQuant analyst explained mail, yesterday’s price movement was a good example of how the futures market affects the value of a cryptocurrency. There are two relevant indicators here. The first is “open interest,” which measures the total amount of bitcoin futures contracts that are currently open on all derivatives exchanges.

When the value of this indicator increases, it means that investors are currently opening more contracts in the futures market. Since an increase in the number of contracts is usually also accompanied by an increase in leverage, an increase in open interest can cause higher BTC price volatility.

On the other hand, a decrease in the values ​​of the indicators means that holders are closing their contracts or being forced into liquidation right now. Since this naturally leads to lower leverage in the market, BTC can follow with less volatility.

Another interesting metric here is Long/Short Liquidation, which measures the total amount of long/short contracts (in USD) forced to close by exchanges as a result of investors accumulating losses that have eaten a certain percentage of their collateral.

Now, here is a chart that shows the increased trend of Bitcoin open interest and futures liquidations and BTC price during yesterday’s action:

Bitcoin Open Interest

How the activity in the futures market has resulted in the price action seen yesterday | Source: CryptoQuant

In the chart above, the analyst has noted how Bitcoin open interest and liquidation of futures (both long and short) are related to the price of the cryptocurrency in every part of yesterday’s spike in price action.

At first, the price was going down, but open interest was growing, which indicated the accumulation of short positions in the market. Then, with a sudden upward movement in price, a large number of these short positions were liquidated, which only spurred prices up.

Naturally, open interest declined when this move occurred due to all the short liquidations. After this steep rally, the price returned to a sideways movement, but open interest began to rise. The analyst notes that this suggests that investors have begun to go long due to FOMO triggered by the sudden rise.

Finally, the price of Bitcoin reversed its direction, causing these now accumulated longs to be liquidated in the same way as the shorts before, which again only increased the movement and led to a prolonged drawdown in BTC.

Bitcoin Price

At the time of writing, Bitcoin is trading around $22,100, down 4% from the last week.

bitcoin price chart

BTC continues to be stuck in a range | Source: BTCUSD on TradingView
Featured image by Traxer on, charts by,

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