Bitcoin rally continues - squeeze incoming?

GB Market Commentary 20/07/2022

by Marcus Sotiriou

Bitcoin’s strength has persisted after yesterday’s market commentary which discussed the potential for the crypto market to continue its rally, partly because of the Coinbase Premium Gap.

Over the past day we have seen over $500 million in ETH short liquidations, and almost $1 billion in total crypto short liquidations. Data from Glassnode shows that ETH Open Interest as a percentage of market cap has declined significantly, whilst BTC Open Interest as a percentage of market cap remains elevated.

Open Interest is the total number of futures contracts held by market participants at the end of the trading day, so it can give an indication of the amount of leverage in an asset. Declining Open Interest means that the market is liquidating and implies that the prevailing price trend is coming to an end. As BTC’s Open Interest is yet to see a noticeable drop, BTC could be primed for a huge move if short positions get squeezed.

Regulation in the U.S. is seeing positive progress as the SEC doubled the size of its crypto unit in May and the agency's head of enforcement is now asking Congress for funding to hire more people. This is no surprise as the SEC’s crypto arm have a lot on their plate currently – they are currently probing Celsius over its decision to freeze accounts, after Celsius filed for bankruptcy protection last week. The SEC is also investigating Do Kwon’s Terraform Labs and UST. I think the growth of the SEC’s crypto unit is also a sign of recognition that the crypto industry has become too large to ignore and more support is needed to help it grow.