Bitcoin Crash: Is Derivatives Market Back At Healthy Levels Yet?

Here’s how the indicators related to the Bitcoin derivatives market have changed following the latest cryptocurrency crash.

Bitcoin Open Interest And Estimated Leverage Ratio Have Both Dropped

In a CryptoQuant Quicktake post, an analyst talked about how the metrics related to the derivatives market have looked like recently. The indicators in question are the Open Interest and the Estimated Leverage Ratio.

The Open Interest (OI) measures the number of positions related to Bitcoin currently open on all derivatives exchanges. The metric includes both short and long positions.

When the value of this metric rises, it means the investors are opening up new positions on the market right now. Such a trend implies that interest in speculation among investors is rising.

On the other hand, the metric going down suggests either the holders are closing up positions of their own volition or getting forcibly liquidated by their platform.

Now, here is a chart that shows the trend in the Bitcoin OI over the past few years:

As is visible in the above graph, the Bitcoin OI has seen a sharp decline alongside the crash in the cryptocurrency’s price. This decline is due to the volatility of a huge amount of liquidations in the market.

The indicator had been valued at $16.7 billion before this plunge, but it has come down to $14.2 billion. This notable decrease has brought the metric back to the same level as before, when the price’s all-time high (ATH) was reached earlier in the year.

The other indicator of interest here is the Estimated Leverage Ratio (ELR), which keeps track of the ratio between the Bitcoin OI and the total amount of BTC sitting in the reserve of derivatives exchanges.

This indicator tells us about the total amount of leverage that the average user on the Bitcoin derivatives market is willing to take on. Below is the chart showing how the crash changed this metric’s value.

This metric also seems to have declined alongside the Bitcoin crash. More particularly, the ELR had been at 0.199 before the price plunge, but now it’s at 0.176.

Historically, an overleveraged and bustling derivatives sector has led to chaos for the cryptocurrency, so decreases in the OI and ELR have resulted in a calmer market.

As the quant explains,

The market appears sufficiently deleveraged post-crash, potentially leading to more stability and setting the stage for a recovery, assuming other market conditions remain favorable.

BTC Price

At the time of writing, Bitcoin is trading at around $56,100, up more than 9% over the past 24 hours.