Bitcoin (BTC) price is still struggling at $20,000 and repeated declines below this level have led some analysts to anticipate a deeper decline in the short term. Earlier in the week, independent market analyst Philip Swift tweeted that the Crypto Fear & Greed Index had fallen back to “extreme fear,” reflecting weak sentiment among investors.
On August 29, analytics firm Delphi Digital highlighted Bitcoin open interest hitting a new record high and said:
“The open leverage ratio for bitcoin futures has reached an all-time high at more than 3% of bitcoin’s market capitalization, following the market-wide crash on August 26.”
According to Delphi Digital, “Higher values indicate that open interest is large relative to market size. This means a higher risk of market stress, succession of liquidation or execution events.”
Open interest on bitcoin. Source: Delphi Digital
Exactly what might trigger such an event remains unknown, but any continuation of the current downtrend in stocks that saw the Dow and S&P 500 conclude a fourth day of decline to end in August with a loss, could continue to weigh on the bitcoin price. Data from CNBC shows that the Dow closed down 4.1% in August and the S&P 500 and Nasdaq closed the month with losses of 4.2% and 4.6%.
Cleveland Fed President Loretta Mester also commented that she expects the benchmark rate to rise above 4% and suggested that there are unlikely to be any cuts throughout the entire year of 2023. 4% is well above the Fed’s target of 2.25%. to 2.5%.
Given the performance of the cryptocurrency markets since the Fed first started raising interest rates on July 26, 2022, and the fact that BTC and stock markets reflect a strong correlation, it would not be surprising to see a long-term decline in the price of Bitcoin over the coming months.
Related: A Possible Double Bottom For Bitcoin Price Could Send BTC To $30K Despite ‘Extreme Scare’
On the other hand, it appears that traders remain optimistic about the upcoming consolidation. The tokens tied to Ether (ETH) and ETH have held up relatively well since rebounding from the sell-off last week. After dropping to $1,422 on August 28, Ether gained 11.3% and traded just below $1,600. Lido (LDO), the largest ETH storage service, is up 12% on the day and 32% from last week’s drop to $1.55.