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Price points: As investor sentiment began to stabilize Tuesday, bitcoin held the $20,000 level while altcoins Ether and Avalanche’s AVAX rose.
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Market Moves: Both ether and bitcoin’s perpetual futures open interest ratios stood at lifetime highs above 0.03 and 0.02 at press time. “The rising ratio indicates open interest is outpacing market size and increases the risk of volatility,” one researcher said.
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Chart of the Day: Over 5,000 BTC that have been dormant for at least seven years have been moved in the past 24 hours.
This article originally appeared in First MoverCoinDesk’s daily newsletter putting the latest moves in crypto markets in context. Subscribe to get it in your inbox every day.
Price point
Bitcoin (BTC) has managed to hold the $20,000 level after dipping to lows of $19,500 on Monday. The world’s largest cryptocurrency by market value is up 3% over the last 24 hours.
Altcoins outperformed bitcoin with ether (ETH) up 8% on Tuesday while stocks rose as investor sentiment began to stabilize. US futures climbed. Markets suffered a rough start to the week on fears of aggressive rate hikes by the Federal Reserve.
From Friday’s peak to Sunday’s low, bitcoin lost 10% while ether lost 17%.
Avalanche’s AVAX token recovered, up 13% on the day after trading down Monday to its lowest price July 13 after a self-described “whistleblower” website accused Ava Labs, the company behind the Avalanche blockchain, of paying lawyers to hurt competitors since then regulators at bay. Since then, Avalanche’s founder, Emin Gün Sirer denied that his company has been involved in a behind-the-scenes smear campaign against competitors of Avalanche.
Cosmos’s ATOM was up 12% and the FLOW token surged 16%.
In other news, FTX CEO Sam Bankman-Fried said in a tweet Monday that the crypto exchange had no plans to acquire rival Huobi. Speculation had emerged that FTX, which has extended financial lifelines to several troubled crypto companies, might acquire Huobi.
Huobi’s native token, HT, declined about 6% following Bankman-Fried’s tweet.
Stablecoin issuer Tether has refuted claims made in a Wall Street Journal report in relation to uncertainty over its balance sheet. The newspaper reported that Tether’s assets outweigh its liabilities by just $191 million, implying a relatively “thin cushion of equity.”
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Market Moves
Ether, Bitcoin Could See Turbulence as Open Interest Leverage Ratio Soars to Record High
By Omkar Godbole
Traders love volatility and Ethereum’s ether (ETH) and bitcoin (BTC) could soon offer plenty of it. That’s the message from observers tracking the so-called open interest leverage ratio.
The metric is calculated by dividing the amount of dollars locked in open perpetual futures contracts by the market capitalization of the underlying cryptocurrency. The ratio represents the degree of leverage relative to the market size or sensitivity of the spot price to the derivative market activity.
Both ether and bitcoin’s perpetual futures open interest ratios stood at lifetime highs above 0.03 and 0.02 at press time, according to data sourced from Decentral Park Capital and blockchain analytics firm Glassnode.
“The rising ratio indicates open interest is outpacing market size and increases the risk of volatility due to future [long/short] squeezes,” Decentral’s researcher Lewis Harland said.
Perpetuals are futures with no expiry. A futures squeeze refers to a sudden and rapid move in an asset’s price caused by bears or bulls abandoning their positions. A short squeeze is a rally fueled by sellers dumping their bearish bets (shorts). A long squeeze is a decline caused by bulls closing their bullish bets (longs). The higher the leverage ratio, the bigger the impact of long/short squeeze on the asset’s price.
Crypto research firm Delphi Digital’s Andrew Krohn voiced a similar opinion in Monday’s client note, saying the ratio suggests that open interest is large relative to the market size and “implies a higher risk of market squeezes, liquidation cascades or deleveraging events.”
The futures market involves leverage, meaning a trader can take a large long/short position by depositing a relatively small amount of money, called a margin, while the exchange provides the rest of the trade value. That exposes futures traders to liquidations – forced closure of long/short positions due to margin shortages often caused by the market moving in the opposite direction of the trade.
These forced closures put upward/downward pressure on prices, leading to increased volatility. The greater the degree of leverage relative to the market size, the bigger the risk of liquidations injecting volatility into the market.
Read the full story here.
Chart of the Day
Dormant Bitcoins on the Move
By Omkar Godbole
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Data tracked by lookintobitcoin.com shows over 5,000 BTC that have been dormant for at least seven years have been moved in the past 24 hours.
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Historically, the market has seen increased downside volatility with the movement of coins that old and of that size, according to Philip Swift, founder of lookintobitcoin.com.
Latest Headlines
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Stablecoin Tether Dismisses Wall Street Journal’s Claim of Inadequate Reserves: The Wall Street Journal had reported that Tether’s assets outweigh its liabilities by just $191 million, implying a relatively “thin cushion of equity.”
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Founder of Turkish Crypto Exchange Thodex Arrested in Albania: Faruk Fatih Özer disappeared in 2021, taking with him funds from 400,000 users.
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South Korea Must Reverse Ineffective Ban on Crypto ICOs, Central Bank Says: The Bank of Korea says companies like stablecoin issuer Terra were able to circumvent the ban and sell digital tokens to locals by setting up corporations overseas.
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Crypto Custody Firm Fireblocks Adds Support for Solana Blockchain’s DeFi, NFT, Gaming Apps: The integration also pushes support for the WalletConnect2 protocol across the Solana ecosystem, said Fireblocks CEO Michael Shaulov.
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Indonesia’s Biggest Tech Firm Enters Crypto With Purchase of Local Exchange, Reuters Reports: GoTo Gojek Tokopedia bought Kripto Maksima Koin for 124.84 billion rupiah ($8.38 million).
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Crypto Lender Hodlnaut Placed Under Interim Judicial Management by Singapore Court: The Singapore-based lender was placed under interim judicial management, a type of creditor protection, on Aug. 29.
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FBI Asks DeFi Platforms to Increase Security Measures, Warns Crypto Investors Against Vulnerabilities: The warning comes after a slew of DeFi hacks this year, which has led to investors losing billions of dollars worth of crypto.
