Amid Bitcoin’s ambitious chase to break the six-figure all-time high (ATH), an insightful analysis by a CryptoQuant analyst known as aytekin delves into the tools for evaluating Bitcoin’s market temperature, distinguishing between truly useful metrics and those that might be misleading.
Aytekin points out that investors frequently worry about Bitcoin’s ability to reach new heights and the potential timing of market tops. To tackle these concerns, he identifies two charts that are less useful for gauging market sentiment: “open interest” and the “supply in profit” metric.
The analyst explains that linking price to open interest is problematic, as historical data shows price changes often drive shifts in open interest rather than the other way around. As Bitcoin and futures markets grow, higher open interest levels are expected in upcoming years, adding complexity to this metric’s predictive power.
Another potentially misleading metric is the “supply in profit,” which tracks overall network profitability. This metric, which correlates closely with Bitcoin’s nominal price, can spike dramatically above 95% during ATH periods. Aytekin suggests that if such extreme profitability consistently triggered significant sell-offs, achieving new highs would be difficult. Instead, he advises looking at how long these high-profitability conditions last, noting they have historically persisted up to a year within larger market cycles.
Conversely, aytekin highlights two metrics he finds reliable for monitoring Bitcoin’s market sentiment: the funding rate and the Spent Output Profit Ratio (SOPR). The funding rate, which measures the cost between long and short positions in futures markets, helps identify overly optimistic market behaviors. He believes this metric offers clearer insights than open interest for assessing market conditions, and currently, funding rates do not indicate extreme market behavior.
The SOPR metric, on the other hand, sheds light on profitability trends, especially when smoothed with a 30-day moving average. Aytekin emphasizes that profitability alone isn’t inherently risky unless it coincides with supply movements within the market. Current SOPR levels indicate a market that is profitable but not overheated.
At present, Bitcoin is trading at $81,838, marking a 2.4% increase in the past day and a slight 0.6% dip from its ATH of $82,379 recorded earlier in the day. The asset’s market capitalization surpasses $1.6 billion, with a 24-hour trading volume of $90.6 billion.
