A key threat indicator triggers alerts.
The crypto market has made a great comeback in the last few days, with the weekend showing some of its strongest gains, with the largest crypto by market cap, Bitcoin, hitting a $71k market cap since March. But wait! Despite this exciting development, CryptoQuant's on-chain analyst, Crypto Lion, is raising a red flag. Market cap to open interest ratios suggest the market may be heading into dangerous waters, he warns.
The market cap/open demand ratio signals high risk
Like the lion's share of the market cap and open interest ratio—a key indicator of market risk—it's flashing warning signs. This metric, which helps investors identify potential risks in the market, indicates that open interest levels are at a high level.
Since the FTX crash in August 2023, open demand has been growing exponentially. Meanwhile, with bitcoin hitting $49,000 a year from now in August 2024, major exchanges look set to use both spot and perpetual contracts to pressure the market, keep prices under control and limit profits.
This has pushed the Market Cap/Open Interest ratio to alarming levels, prompting traders to keep an eye on it.
Binance's market moves add to the risks
Crypto Lion suggests that Binance's approach has added to market volatility. By using spot and perpetual contracts, Binance appears to be putting pressure on prices, making it difficult for the market to rally. This method creates a challenge, especially for traders who are waiting for a breakout.
Adding more fuel to the fire, exchanges like Coinbase and others are expanding their crypto-linked exchange-traded funds (ETFs). While ETFs take long-term growth as a positive step, they also add complexity, perhaps making it easier for big players to influence market trends.
This high open interest rate and increased ETF activity have raised concerns about price manipulation.
What's next?
Crypto Lion advises caution, stating that high open demand on large exchanges such as Binance can lead to unexpected price changes. Therefore, it is very important to carefully manage risks in this risky market.
