According to on-chain data, the Bitcoin reserves of derivative exchanges have risen in recent months as the cryptocurrency price has fallen.
Bitcoin Derivatives Exchange Reserve Observes Sharp Uptrend
An analyst explained in CryptoQuant that the crash in BTC prices may have forced whales and long-term owners to open short positions to protect their portfolios.
The “derivative exchange reserve” is an indicator that measures the total amount of Bitcoin currently present on wallets of all derivative exchanges.
If this metric rises, that means more coins will be trading on derivative exchanges. Investors may be opening leveraged positions, which could lead to greater volatility in the cryptocurrency’s price.
An indicator that is in a downward trend indicates investors are withdrawing money from these exchanges.
Below is a chart to show the Bitcoin derivatives exchange reserve trend over the past one year.
CryptoQuant: The EMA7 value for the metric appears to be in an uptrend. Source: CryptoQuant| 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. This means that many long-term holders as well as whales will be in dire need of assistance right now.
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According to the quant, the increase in derivative reserves is due to long-term investors and whale panic over portfolio losses.
They are seeking to reduce their risk and hedge their portfolios by taking short positions on derivate exchanges.
But, as the analyst notes, such aggressive shorting will create additional selling pressure which would cause the price to draw down further.
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This situation also opens up another option, which would be a large short squeeze. Before such an event is possible, there will have to be a lot of demand.
It may take longer and more declines in crypto’s value before the right conditions are created, according to the quant.
BTC Prices
At the time of writing, Bitcoin’s price floats around $19.3k, down 29% in the last seven days. The crypto’s value has dropped 33% over the last month.
It looks like BTC's value has recovered a bit after a plunge below $18k. Source: BTCUSD on tradingView| Source: BTCUSD on TradingView
Unsplash.com's featured image. Charts by TradingView.com. CryptoQuant.com chart.