Cross-chain data shows that Bitcoin reserves on derivative exchanges have recently risen as the cryptocurrency’s price continues to collapse.
Bitcoin Exchange Derivative Reserve Sees Sharp Evolution
As explained by an analyst at CryptoQuant MailThe faltering bitcoin price could force whales and long-term holders to open short positions in order to hedge their investment portfolios.
derivative exchange reserve“It is an indicator that measures the total amount of bitcoin currently in the wallets of all derivative exchanges.
When the value of this metric rises, it means that the coins are entering into derivative exchanges at the moment. This trend could mean that investors are currently opening positions with leverage, which could lead to higher volatility in the value of the cryptocurrency.
On the other hand, the downtrend in the index indicates that investors are currently withdrawing their currencies from these exchanges.
Now, here is a chart showing the trend in Bitcoin derivatives reserves over the past year:
The EMA 7 value of the metric seems to have observed some uptrend recently | Source: CryptoQuant
As you can see in the above chart, Bitcoin derivatives reserves have been trending lower for a long time, until recently when the value of the index started to rise again.
Recent data shows that the collapse in the currency price has driven about 50% of the total Bitcoin supply Loss. Accordingly, many long-term whales and whales are bound to be underwater at the moment.
Quantum believes the rise in derivatives reserves is due to those long-term owners and whales who are panicking their portfolios are losing value.
These owners are looking to hedge their portfolios and reduce risk by opening short positions on derivative exchanges.
However, the analyst notes that such heavy selling would create more selling pressure, causing the price to fall further.
Related reading | Long-term Bitcoin holders now own close to 80% of the realized capital
But another possibility also arises from this situation, which is a massive short squeeze. There must be a lot of demand and a sudden reversal in the bitcoin price before such an event occurs.
Quant believes that it may take more time and further decline in the value of the cryptocurrency for the right conditions to align with it.
At the time of writing this report, Bitcoin price It is floating around $19.3K, down 29% in the past seven days. Over the past month, the cryptocurrency has lost 33% of its value.
Looks like the value of BTC has rebounded back a little after a dip below $18k | Source: BTCUSD on TradingView
Featured image from Unsplash.com, charts from TradingView.com, CryptoQuant.com