Is Bitcoin Now Overheating? Key Metrics Reveal Crucial Insights For Investors
12 November 2024 - 4:00AM
NEWSBTC
Amid Bitcoin’s pursuit to hit the six figures all-time high (ATH),
a CryptoQuant analyst known as aytekin, has shared a comprehensive
analysis on tools to assess Bitcoin’s market temperature, focusing
on distinguishing useful from potentially misleading metrics.
According to aytekin, investors’ concerns often center around
Bitcoin’s ability to reach new peaks and when it might experience a
market top. To navigate these questions, he highlighted two charts
he pays less attention to for gauging market sentiment: “open
interest” and the “supply in profit” metric. Related Reading:
Analyst Reveals Bitcoin Key Support Levels For Reaccumulation –
Details Challenges With BTC Key Metrics The analyst elaborated that
establishing a causal link between price and open interest remains
challenging, as historical data indicates that price fluctuations
tend to drive changes in open interest levels rather than the
reverse. Furthermore, the analyst reveals that with the growth of
futures markets and Bitcoin’s adoption, higher levels of open
interest are anticipated in the coming years. Another metric
aytekin views as potentially misleading is the “supply in profit,”
which measures overall network profitability. This metric
correlates with Bitcoin’s nominal price, often leading to extreme
spikes above 95% in profitability during ATH periods. However,
aytekin suggests that reaching new highs would be problematic if
extreme profitability consistently triggered major sell-offs.
Instead, he recommends considering how long these
high-profitability levels persist, noting that historically, such
conditions have lasted up to a year within broader market cycles.
Credible Metric Suggests Overheating Bitcoin? In contrast, the
analyst emphasized two metrics he finds valuable for tracking
Bitcoin’s market sentiment: the funding rate and the Spent Output
Profit Ratio (SOPR). The funding rate, which tracks the cost paid
between long and short positions in futures markets, serves as a
tool to identify “overzealous” market optimism. Aytekin believes
monitoring this metric offers better insights than open interest
for assessing market conditions. As of now, he notes that funding
rates are not signaling extreme market behavior. The analyst
reveals that the SOPR metric clarifies profitability trends,
particularly when smoothed using a 30-day moving average. Aytekin
highlights that profitability alone is not inherently risky unless
it coincides with supply movements within the market. The
CryptoQuant analyst reveals that current SOPR levels indicate a
market that, while showing signs of profitability, does not exhibit
symptoms of overheating. Related Reading: Bitcoin Could Be Ready
For ‘Phase 2’ Of This Historical Bull Pattern Meanwhile, Bitcoin
has been trading for $81,838, up by 2.4% in the past day. This
trading price marks a 0.6% decline from the asset’s ATH of $82,379
created earlier today. When writing, the asset’s market
capitalization sits above $1.6 billion with a 24-hour trading
volume of $90.6 billion. Featured image created with DALL-E,
Chart from TradingView
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