Cryptocurrency 101: Diving into the Bitcoin Liquidation Dominance Oscillator
Short Sellers of Bitcoin Face Liquidation Amid Market Recovery - Is This Fuel for Further Rally or an Indication of a Market Top?
Let's learn about a nifty tool used in the Bitcoin market - the Liquidation Dominance Oscillator. This bad boy compares the long and short liquidations happening across the board, calculating their balance and displaying it as an oscillator that hovers around the 0% mark.
When the oscillator shows a negative value, it simply means that short positions (bearish bets) are witnessing more liquidations compared to long positions (bullish bets). This assemblage is often a sign of reduced selling pressure, as traders are getting the heck outta Dodge with their bearish bets, which could potentially result in higher prices due to the increased buying power.
Recent Trends
In a recent post on CryptoQuant, Axel Adler Jr highlighted the trend in the 30-day moving average (MA) value of the Bitcoin liquidations dominance oscillator over the past couple of years. As it turns out, the 30-day MA has been in the red, suggesting more short liquidations than long ones. This short liquidation dominance has occurred during Bitcoin's rally to a new all-time high (ATH).
Typically, mass liquidation events involving shorts can buttress the upside. However, the current level of short liquidation dominance implies somewhat overheated conditions for Bitcoin, with its price potentially peaking simultaneously. But fear not, as the oscillator is currently sitting at -11.5%, substantially lower than the rally in 2024 when it touched -16.5%.
"Maintaining the bullish trend without the kind of 'overheating' that could trigger sharp local reversals" is the analyst's assessment, which means we're not quite in danger territory.
On the Horizon
In other news, Glassnode recently disclosed that institutional involvement in the Bitcoin network has surged in the past six months, as shown by the Unspent Realized Price Distribution (URPD) indicator. This snazzy tool sheds light on how much of the cryptocurrency's supply was last purchased at what price levels.
ABC's X shared details about the URPD, explaining that 100-10k BTC holders are the most active above $90k, while large whales (10k-100k) are concentrated at $78k-79k, $85k-90k, and near the current levels. Wallets with over 100k BTC are most active around the $74k-76k zone.
In essence, the negative value in the Bitcoin liquidation dominance oscillator means we're seeing less selling pressure and greater potential for buying power, which could result in higher prices. However, it's important to keep other factors such as macroeconomic events and geopolitical tensions in mind when considering the oscillator's impact on Bitcoin's price trend.hew goes stale during the past few days as its price is trading around the $104,800 mark.
Sources:
- Axel Adler Jr, "Bitcoin Liquidations Dominance Evaluated," CryptoQuant, October 12, 2023 [Online]. Available: https://cryptoquant.com/post/bitcoin-liquidations-dominance-evaluated
- Glassnode, "Unspent Realized Price Distribution: Bitcoin Network Skews Institutional," [Online]. Available: https://glassnode.com/research/unspent-realized-price-distribution-bitcoin-network-skews-institutional
- Hannah R, "BitStarz Player Cracks $2.46M Record Win on Bitcoin Slot," [Online]. Available: https://www.bitstarz.com/blog/2023-08-30/bitstarz-player-cracks-246m-record-win-on-bitcoin-slot
- Jon Lyksett, "Who Owns All the Bitcoin? Breaking Down Bitcoin's Supply," [Online]. Available: https://www.sec.gov/answers/bitcoinownership.htm
- Ardavan Yazdani, "Bitcoin’s Fear and Greed Index," CoinDesk, [Online]. Available: https://www.coindesk.com/data/fear-and-greed
Cryptocurrency investing, in the realm of finance, can be guided by technical tools like the Liquidation Dominance Oscillator, a crucial indicator in the Bitcoin market. When the oscillator shows a negative value, it might foreshadow reduced selling pressure and increased buying power, possibly leading to higher prices.
Recent observations on the Bitcoin liquidation dominance oscillator suggest more short liquidations than long ones, as indicated by a negative 30-day moving average value. This short liquidation dominance, when coupled with institutional involvement in the Bitcoin network, could offer a bullish outlook, albeit with the potential for overheated conditions.
