Market Wrap: Bitcoin Vulnerable to Rising Leverage Despite Short-Term Optimism

Bitcoin continued to trade in a tight range on Thursday and is roughly flat over the past 24 hours. Some analysts are concerned that rising leverage in the bitcoin futures market could precede a near-term price drop, while others expect the current trading range to result in further upside.

CryptoQuant analysts pointed to the slower pace of whales, or large bitcoin buyers, buying as a cautious market signal. Meanwhile, technical indicators suggest bitcoin’s price decline could stabilize at around $53,000, although upside appears to be limited beyond $60,000-$65,000.

With the end of year approaching, some analysts told CoinDesk that most investors will probably exit their long positions to lock in gains, which could make a sustained price rise to $100,000 BTC unlikely.

Latest prices

• Bitcoin (BTC): $56,974, +0.5%
• Ether (ETH): $4,532, -0.7%
• S&P 500: +1.4%
• Gold: $1,769, -0.8%
• 10-year Treasury yield closed at 1.436%

Concerns about rising leverage

Open interest, or the total number of outstanding contracts, in the bitcoin futures market continues to rise despite the recent crypto sell-off.

“It is not common to see such a high open interest being sustained for such a long duration. This could suggest that the market is currently oversaturated with leverage,” Arcane Research wrote in a report earlier this week.

High leverage means bitcoin futures traders holding long positions could be vulnerable to liquidations (broad-based selling) if the BTC price continues to drift lower.

Slower bitcoin spending

The chart below shows the recent decline in the average lifespan (ASOL), measured in days, of all spent transactions on the Bitcoin blockchain. High values indicate that old coins are being spent as long-term holders take some profits amid higher market volatility, whereas low values indicate a slowdown in spending activity.

“During corrections, declining ASOL is a signal that investor confidence is improving, and fewer coins are spent,” blockchain data firm Glassnode tweeted on Wednesday. A confirmed trough in the ASOL indicator could point to a short-term market bottom similar to what occurred in July and October.

Altcoin roundup

• Badger DAO protocol suffers $120 million exploit: The decentralized finance protocol suffered an attack Wednesday evening, resulting in the loss of $120 million in BTC and ETH, reported CoinDesk’s Andrew Thurman. The attacker drained funds from the wallets of dozens of users of the Badger DAO yield vault protocol using malicious contract permissions. “It looks like a bunch of users had approvals set for the exploit address allowing [the address] to operate on their vault funds and that was exploited,” Badger core contributor Tritium wrote on Discord. As of Wednesday evening, BadgerDAO’s BADGER token was down 21% to $21.64.
• Filecoin launches open-source dashboard to map blockchain electricity usage: The Filecoin Green project, a green energy initiative by the decentralized data storage blockchain Filecoin, has launched an open-source dashboard in a bid to prove its commitment to renewable energy, reported CoinDesk’s Ian Allison. Filecoin hopes the system will be adopted by bitcoin miners. “If bitcoin miners are interested, they could set up a database where their energy use and proof of renewable energy use are recorded,” said Filecoin Green’s creator, Alan Ransil.
• Solana-based metaverse project Solice raises $4.3 million funding round: Solice is a cross-platform PC and virtual reality (VR) game built in the mold of metaverse projects such as Decentraland and The Sandbox. The round was led by Zhu Su’s Three Arrows Capital, DeFiance Capital and Animoca Brands, reported CoinDesk’s Andrew Thurman. In an interview with CoinDesk, Solice founder Christian Zhang said that the game will feature a native currency as well as game assets backed by non-fungible tokens (NFT). The assets will also have in-game financialization elements.

Relevant news

• Goldman Sachs Sees Crypto Options Markets as ‘Next Big Step’ for Institutional Adoption
• VanEck Files to Launch Digital Asset Mining ETF
• E-Commerce Giant Mercado Libre Taps Paxos to Power Crypto Service in Brazil
• Large Traders Dominate DEXs as High Ethereum Fees Keep Retail Investors at Bay

Other markets

Most digital assets in the CoinDesk 20 ended the day higher.

Notable winners as of 21:00 UTC (4:00 p.m. ET):

• Cardano (ADA): +11.9%
• Uniswap (UNI): +7.8%

Notable losers:

• Aave (AAVE): -2.5%
• Chainlink (LINK): -1.9%