As Bitcoin continues its ambitious journey towards reaching a six-figure all-time high (ATH), investors and analysts are keenly observing a variety of market metrics. One such analyst, widely recognized as Aytekin from CryptoQuant, has provided a thorough examination of the tools used to assess Bitcoin’s market dynamics. This analysis focuses on distinguishing between metrics that genuinely provide insights and those that may be potentially misleading.
Challenges With Key Bitcoin Metrics
One of the primary concerns for investors revolves around Bitcoin’s potential to achieve new peaks and the timing of possible market tops. To navigate these uncertainties, Aytekin has highlighted two specific charts that he considers less reliable for gauging market sentiment: “open interest” and the “supply in profit” metric.
Understanding Open Interest
Aytekin elaborates that establishing a direct causal relationship between Bitcoin’s price and open interest is challenging. Historical trends show that price fluctuations often drive changes in open interest levels, rather than open interest influencing price movements. This observation is particularly relevant as the futures markets continue to expand and Bitcoin’s adoption grows, leading to expected increases in open interest over the coming years.
Decoding the Supply in Profit Metric
Another metric Aytekin considers potentially misleading is the “supply in profit,” which measures the overall profitability of the Bitcoin network. This metric is closely tied to Bitcoin’s nominal price, often resulting in extreme spikes in profitability during ATH periods. However, Aytekin warns that reaching new highs could be problematic if these spikes consistently trigger major sell-offs. Instead, he advises investors to consider how long these high-profitability levels are sustained. Historically, such conditions have persisted for up to a year within broader market cycles.
Credible Metrics Indicating Bitcoin’s Market Sentiment
In contrast to the aforementioned metrics, Aytekin emphasizes two indicators he finds valuable for tracking Bitcoin’s market sentiment: the funding rate and the Spent Output Profit Ratio (SOPR).
Analyzing the Funding Rate
The funding rate is a critical metric that tracks the cost paid between long and short positions in futures markets. It serves as a tool to identify instances of “overzealous” market optimism. Aytekin believes that monitoring this metric provides better insights than open interest when assessing market conditions. Currently, he notes that funding rates do not signal extreme market behavior.
Exploring the SOPR Metric
The SOPR metric offers clarity on profitability trends, especially when smoothed using a 30-day moving average. Aytekin highlights that profitability alone is not inherently risky unless it coincides with significant supply movements within the market. The current SOPR levels indicate a market that, while showing profitability, does not exhibit signs of overheating.
Meanwhile, Bitcoin is trading at $81,838, marking a 2.4% increase in the past day. Despite this rise, it shows a 0.6% decline from its ATH of $82,379, reached earlier today. At the time of writing, Bitcoin’s market capitalization exceeds $1.6 billion, with a 24-hour trading volume of $90.6 billion.
