On-chain data shows the Bitcoin reserve of derivative exchanges has surged up recently as the price of the crypto has continued to crash down.
Bitcoin Derivatives Exchange Reserve Observes Sharp Uptrend
As explained by an analyst in a CryptoQuant post, the crashing BTC price may be forcing whales and long-term holders to open short positions in order to hedge their portfolios.
The “derivative exchange reserve” is an indicator that measures the total amount of Bitcoin currently present on wallets of all derivative exchanges.
When the value of this metric goes up, it means coins are entering into derivative exchanges right now. Such a trend may mean investors are opening leveraged positions at the moment, which can result in higher volatility in the value of the crypto.
On the other hand, a downtrend in the indicator implies investors are withdrawing their coins from these exchanges currently.
Now, here is a chart that shows the trend in the Bitcoin derivative exchange reserve 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 above graph, the Bitcoin derivative exchange reserve had been heading down for quite a while, until recently when the indicator’s value once again started rising up.
Recent data suggests that the crash in the coin’s price has pushed around 50% of the total BTC supply into loss. Based on this, many long-term holders and whales are also bound to be underwater right now.
The quant believes that the uplift in the derivative reserve is because of these long-term holders and whales panicking about their portfolios losing value.
These holders are looking to hedge their portfolios and reduce risk by opening short positions on derivative exchanges.
The analyst points out, however, that such aggressive shorting would create even more selling pressure, causing the price to see further drawdown.
Related Reading | Bitcoin Long-Term Holders Now Own Nearly 80% Of Realized Cap
But another possibility also arises from this situation, and that would a huge short squeeze. A lot of demand and a sudden reversal in the price of Bitcoin will need to occur before such an event can take place.
The quant thinks it may take more time and further decline in the value of the crypto for the correct conditions to align for it.
At the time of writing, Bitcoin’s price floats around $19.3k, down 29% in the last seven days. Over the past month, the crypto has lost 33% in value.
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