As Bitcoin seeks to reach its all-time high of six figures, a recent analysis has shed light on effective ways to evaluate the cryptocurrency’s market dynamics. An analyst from CryptoQuant discussed methods for distinguishing between valuable and potentially misleading metrics used to assess Bitcoin ’s market temperature, particularly concerning predictions of price peaks and market tops.
The analysis identifies challenges associated with key Bitcoin metrics. For instance, the relationship between price and open interest is complicated, as evidence suggests that price movements typically influence open interest levels rather than vice versa. As the futures market for Bitcoin continues to expand, an increase in open interest is expected, making it a less reliable indicator for market sentiment.
Another metric discussed is the supply in profit, which reflects overall network profitability. This metric often spikes dramatically during significant price peaks, reaching over 95% profitability at all-time highs. The analyst cautions that while soaring profitability levels can indicate positive market health, they can also precipitate major sell-offs if they occur too frequently. Thus, the duration of high profitability levels within broader market cycles should be closely monitored, as historical trends show such phases can last up to a year.
However, the analysis highlights two metrics deemed more informative for gauging Bitcoin ’s market sentiment: the funding rate and the Spent Output Profit Ratio (SOPR). The funding rate provides insights into market sentiment by tracking the costs between long and short positions in futures. Current funding rates reflect moderate market behavior, which suggests a lack of extreme optimism.
Additionally, the SOPR metric helps clarify trends in profitability and shows that, despite some signs of profit, the market does not indicate overheating. As of now, Bitcoin trades at approximately $87,700, reflecting a slight decline from its recent peak, with a market capitalization exceeding $1.7 billion and a 24-hour trading volume around $130 billion, according to CoinMarketCap data.
