Bitcoin Derivatives Exchange Reserve Increases As Bitcoin Continues To Fall
As the price of the cryptocurrency has continued to plummet, on-chain data indicates derivative exchanges’ Bitcoin reserves have exploded.
According to a post on CryptoQuant by an analyst, the collapsing BTC price may be compelling whales and long-term investors to create short bets in order to hedge their portfolios.
The “derivative exchange reserve” is a metric that represents the total amount of Bitcoin presently stored in the wallets of all derivative exchanges.
When the value of this indicator increases, it indicates that coins are currently entering derivative exchanges. Such a pattern may indicate that investors are now establishing leveraged positions, which may result in more price volatility.
In contrast, a downward trend in the indicator indicates that investors are now withdrawing their coins from these exchanges. Here is a graphic depicting the trend of the Bitcoin derivatives exchange reserve over the last year:
Bitcoin Derivative Reserve of Exchange
As seen in the above graph, the Bitcoin derivative exchange reserve has been declining for a considerable amount of time prior to its current upward trend.
Recent research reveals that almost fifty percent of the entire BTC supply has been lost due to the coin’s price decline. Consequently, many long-term holders and whales must also be underwater at this time.
The quant argues that the increase in the derivative reserve is due to these long-term holders and whales fretting about the value of their portfolios.
By establishing short positions on derivative markets, these holders want to hedge their portfolios and decrease risk.
However, the analyst notes that such aggressive shorting would increase selling pressure, forcing the price to decline further.
However, another alternative exists in this scenario, and that is a massive short squeeze. A great deal of demand and a rapid turnaround in the price of Bitcoin is required for this to occur.
The quant believes that it may require further time and a further decrease in the value of the cryptocurrency before its favourable circumstances are met.