Bitcoin Bearish Signal: Spot And Derivative Reserves Shoot Up

Keshav Verma

1 year ago

3 mins read

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On-chain data shows the Bitcoin spot and derivative exchange reserves have both shot up recently, a sign that could be bearish for the price.

Bitcoin Spot And Derivative Reserves Register Growth

As pointed out by an analyst in a CryptoQuant post, the open interest and the funding rates are also heating up in the BTC market. The “exchange reserve” is an indicator that measures the total amount of Bitcoin that investors are depositing into wallets of centralized exchanges right now.

This metric has two versions; one is for the spot exchanges, while the other is for the derivative platforms. Usually, investors deposit to spot exchanges for selling purposes, so an increase in the reserves of these platforms can suggest selling pressure is rising in the market.

And as holders use derivative exchanges for opening positions on the futures market, a rise in this reserve can lead to higher volatility (the effect on the price can be in either direction).

Now, here is a chart that shows the trend in these Bitcoin exchange reserves over the last month:

The values of all the metrics seem to have seen a rise in recent days | Source: CryptoQuant

As displayed in the above graph, both the spot and derivative exchange reserves have increased in value recently, suggesting that investors have been making deposits to these platforms. The increased spot reserves suggest an elevated selling pressure in the market, while the derivative reserves imply an overheated futures sector.

The chart also includes data for two other metrics, the open interest, and the funding rates. The “open interest” is an indicator that measures the total amount of futures positions currently open on derivative exchanges. This metric takes into account both short and long contracts.

The graph shows that this metric has also trended up recently, further suggesting that the futures market is currently overheated. The other indicator, the “funding rates,” tells us whether there are more shorts or longs in the market.

The Bitcoin funding rates are favorable now, implying that the longs are overwhelming the shorts. Generally, whichever way this metric swing tells us which of these contract holders is more at risk of a liquidation squeeze.

So far, there hasn’t been any long squeeze in the market, but rather a short squeeze as the price has been able to keep up the momentum. There have been some high liquidations during the past day that may have helped calm the overheated futures market for now, but since there is increased selling pressure on the spot exchanges, BTC is still at risk for a short-term pullback.

BTC Price

At the time of writing, BTC is trading around $19,100, up 14% in the last week.

Looks like the value of the crypto has surged in the last few days | Source: BTCUSD on TradingView

Featured image from Thought Catalog on Unsplash.com, charts from TradingView.com, CryptoQuant.com

Keshav Verma

Keshav is currently a senior writer at NewsBTC and has been attached to the website since June 14, 2021.

Keshav has been writing for many years, first as a hobbyist and later as a freelancer. He has experience working in a variety of niches, even fiction at one point, but the cryptocurrency industry has been the longest he has been attached to.

In terms of official educational qualifications, Keshav holds a bachelor’s degree in Physics from one of the premier institutes of India, the University of Delhi (DU). He started the degree with an aim of eventually making a career in Physics, but the onset of COVID led to a shift in plans. The virus meant that the college classes had to be delivered in the online-mode and with it came free time for him to explore other passions.

Initially only seeking to make some beer money, Keshav unexpectedly landed clients offering real projects, after which there was no looking back. Writing was something he had always enjoyed and to be able to do it for a living was like a dream come true.

Keshav completed his Physics degree in 2022 and has been focusing on his writing career since, but that doesn’t mean his passion for Physics has ended. He eventually plans to re-enter university to obtain a masters degree in the same field, but perhaps only to satiate his own interest rather than for using it as a means to find employment..

Keshav has found blockchain and its concepts fascinating ever since he started going down the rabbit-hole back in 2020. On-chain analysis in particular has been something he likes to research more about, which is why his NewsBTC pieces tend to involve it in some form.

Being of the science background, Keshav likes if concepts are clear and consistent, so he generally explains the indicators he talks about in a bit of detail so that the readers can perhaps come out having understood and learnt something new.

As for hobbies, Keshav is super into football, anime, and videogames. He enjoys football not only as a watcher, but also as a player. For games, Keshav generally tends towards enjoying singleplayer adventures, with EA FC (formerly FIFA) being the only online game he is active in. Though, perhaps due to being ultra-focused on the game, he is today a semi-pro on the EA FC scene, regularly participating in tournaments and sometimes even taking back prize money.

Because of his enthusiasm for anime and games, he also self-learned Japanese along the way to consume some of the untranslated gems out there. The skill didn’t merely remain as just a hobby, either, as he put it to productive use during his exploration for small-time gigs at the start of COVID, fulfilling a couple of Japanese-to-English translation jobs.

Keshav is also big into fitness, with agility and acceleration-related workouts making a big part of his program due to the relevance they have in football. On top of that, he also has a more traditional strength based program for the gym, which he does to maintain an overall fitness level of his body.

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