Altcoins
Altcoin season coming soon? As said this Ethereum model could suggest
One quant explained how a pattern currently forming in Ethereum open interest could imply that altcoin season is coming “earlier than expected.”
Altcoin season could be coming soon based on Ethereum model
In a CryptoQuant Quicktake jobAn analyst has explained why an altcoin season could soon be coming for the cryptocurrency sector, based on a trend occurring in a few Ethereum and Bitcoin indicators.
The first relevant measure here is the “Open interest”, which tracks the total amount of derivatives positions linked to a given asset currently open on all centralized exchanges.
When the value of this metric increases, it means that speculators are currently opening new positions for the coin. On the other hand, a decrease implies that users are closing their positions of their own accord or are being forcibly liquidated by their platform.
Now here is a chart that shows how the Open Interest trend has compared between Bitcoin and Ethereum over the past year:
As the chart above shows, Bitcoin Open Interest has been moving more or less sideways recently, while at the same time the metric has been growing for Ethereum.
This suggests that ETH has recently seen more appetite for derivatives market contracts than the original cryptocurrency. One of the determining factors could be the news cycle related to the approval of the spot exchange-traded funds (ETFs) for the asset.
In the same chart, the quant also joined the data of another indicator: the Estimated Debt Ratio (ELR). This metric measures the ratio between open interest and exchange reserve for any asset. The latter naturally corresponds to the total amount of currency currently present in the wallets of all centralized exchanges.
The ELR essentially gives us information about the level of leverage that the average derivatives market user is currently choosing. The chart shows that this ratio has recently seen a sharp increase for Ethereum, but has stagnated for Bitcoin.
So, it would appear that not only has ETH attracted more speculative interest than BTC recently, but also that users who open contracts are taking higher risks because they are taking on more leverage.
The analyst believes that the fact that Ethereum has surpassed Bitcoin in these indicators could be a potential sign that an altcoin season could soon be approaching.
“If Ethereum price continues to consolidate within the current range, it is very possible that the altcoin season will kick off sooner than expected,” the quant notes. It now remains to be seen how things will evolve in the market in the near future, given this change in trend.
ETH Price
After experiencing a slowdown earlier, Ethereum has gotten back on track in recent days, with its price now back above the $3,900 level.
Featured image by Dall-E, CryptoQuant.com, chart by TradingView.com