On-chain data shows that Bitcoin reserves on derivatives exchanges have recently surged as the price of the cryptocurrency continues to fall.
Bitcoin Derivatives Exchange Reserves Observe Sharp Uptrend
As one analyst in CryptoQuant explained postalplunging BTC prices could force whales and long-term holders to open short positions to hedge their portfolios.
“Derivatives” foreign exchange reserves” is a measure of the total amount of Bitcoin currently present in all derivatives exchange wallets.
When the value of this metric rises, it means that the coin is now making its way to derivatives exchanges. This trend could mean that investors are currently opening leveraged positions, which could lead to more volatility in the value of cryptocurrencies.
On the other hand, the downtrend of this metric means that investors are currently withdrawing their tokens from these exchanges.
Now, this chart shows the trend of Bitcoin derivatives foreign exchange 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 chart above, Bitcoin derivatives foreign exchange reserves have been falling for quite some time until recently the value of this metric started to rise again.
Recent data suggests that the slump in token prices has pushed around 50% of the total BTC supply into lose. Based on this, many long-term holders and whales are bound to be underwater now too.
The quantitative analyst believes the rise in derivatives reserves comes as these long-term holders and whales panic about losing value in their portfolios.
These holders want to hedge their portfolios and reduce risk by opening short positions on derivatives exchanges.
However, analysts noted that such aggressive shorting would create more selling pressure, leading to further price declines.
Related reading | Long-term Bitcoin holders now own nearly 80% of the realized cap
But this situation also creates another possibility, which is a huge short squeeze. Before such an event could happen, a massive demand and a sudden reversal in Bitcoin’s price would be required.
Quantitative analysts believe that it may take more time and further declines in the value of the cryptocurrency for it to meet the right conditions.
As of this writing, price of bitcoin Floating around $19.3k, down 29% over the past 7 days. The cryptocurrency has lost 33% in value over the past month.
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