Quant Explains How Bitcoin On-Chain Data Can Identify Peaks Vs Shakeouts

Keshav Verma

1 year ago

3 mins read

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A quant explains how Bitcoin on-chain data may be used to identify whether a high was because of peak formation or due to a shakeout.

Open Interest, Funding Rates, And LTH-SOPR May Signal Whether A Peak Vs A Shakeout

As explained by an analyst in a CryptoQuant post, a combination of different on-chain indicators may be able to identify whether a high means the price is forming a peak or if it’s just a shakeout.

The relevant Bitcoin indicators here are the open interest, the funding rates, and the LTH-SOPR. Before considering the trend of each, here are some quick explanations of what these metrics are.

The open interest is an indicator that shows the total amount of open positions currently on derivative exchanges. It includes both long and short positions.

Funding rates are the periodic payments that futures traders make between each other. Positive values of the metric mean long traders are currently paying a premium to keep their position while negative ones mean short traders are the ones paying.

Finally, the LTH-SOPR, or the Long-Term Holder SOPR, highlights the degree of profit taking from long-term holders. SOPR here stands for Spent Output Profit Ratio.

Now, here is a char that compares the trend of each of these indicators against the Bitcoin price:

The relation between these indicators and the peaks and shakeouts | Source: CryptoQuant

The quant has marked important points on the chart where peaks or shakeouts happened. Corresponding to these price points, the aforementioned indicators have shown some interesting trends.

Based on observations of these trends, the analyst thinks the pattern may be something like this:

If the market is showing high open interest as well as highly positive funding rates, and long-term holders are aggressively taking profits, then a price high formed is a peak.

While if high open interest is accompanied by only slightly positive funding rates and few LTH taking their profits, then the market only observes a shakeout.

Bitcoin Price

At the time of writing, BTC’s price floats around $61.7kk, up 1% in the last seven days. Over the past thirty days, the crypto has accumulated 23% in value.

The below chart shows the trend in the price of Bitcoin over the last five days.

BTC price slips back down again | Source: BTCUSD on TradingView

In the last few days, Bitcoin seemed to have made some recovery back above $63k, but since then the price has again dropped back down.

If the pattern with the on-chain indicators discussed earlier holds true, and if the price dips further here, then it would only be a shakeout.

Featured image from Unsplash.com, charts from TradingView.com, CryptoQuant.com

Keshav Verma

Keshav is currently a senior writer at NewsBTC and has been attached to the website since June 14, 2021.

Keshav has been writing for many years, first as a hobbyist and later as a freelancer. He has experience working in a variety of niches, even fiction at one point, but the cryptocurrency industry has been the longest he has been attached to.

In terms of official educational qualifications, Keshav holds a bachelor’s degree in Physics from one of the premier institutes of India, the University of Delhi (DU). He started the degree with an aim of eventually making a career in Physics, but the onset of COVID led to a shift in plans. The virus meant that the college classes had to be delivered in the online-mode and with it came free time for him to explore other passions.

Initially only seeking to make some beer money, Keshav unexpectedly landed clients offering real projects, after which there was no looking back. Writing was something he had always enjoyed and to be able to do it for a living was like a dream come true.

Keshav completed his Physics degree in 2022 and has been focusing on his writing career since, but that doesn’t mean his passion for Physics has ended. He eventually plans to re-enter university to obtain a masters degree in the same field, but perhaps only to satiate his own interest rather than for using it as a means to find employment..

Keshav has found blockchain and its concepts fascinating ever since he started going down the rabbit-hole back in 2020. On-chain analysis in particular has been something he likes to research more about, which is why his NewsBTC pieces tend to involve it in some form.

Being of the science background, Keshav likes if concepts are clear and consistent, so he generally explains the indicators he talks about in a bit of detail so that the readers can perhaps come out having understood and learnt something new.

As for hobbies, Keshav is super into football, anime, and videogames. He enjoys football not only as a watcher, but also as a player. For games, Keshav generally tends towards enjoying singleplayer adventures, with EA FC (formerly FIFA) being the only online game he is active in. Though, perhaps due to being ultra-focused on the game, he is today a semi-pro on the EA FC scene, regularly participating in tournaments and sometimes even taking back prize money.

Because of his enthusiasm for anime and games, he also self-learned Japanese along the way to consume some of the untranslated gems out there. The skill didn’t merely remain as just a hobby, either, as he put it to productive use during his exploration for small-time gigs at the start of COVID, fulfilling a couple of Japanese-to-English translation jobs.

Keshav is also big into fitness, with agility and acceleration-related workouts making a big part of his program due to the relevance they have in football. On top of that, he also has a more traditional strength based program for the gym, which he does to maintain an overall fitness level of his body.

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