TELL-TALE SIGNS OF PRICE DROP
What metrics were indicating this recent price drop from its ATH of 66k?
#1. Futures open interest for the perpetual market.
- When interest comes into the market, euphoria becomes the emotional state of investors which in turn usually creates high volume in the futures space. When the amount of open contracts in the market increases, and the market is too leveraged it can become volatile and at many times the opposite direction. As you can see in the chart below, when futures open interest across many of the exchanges increases, it usually increases monotonically with price. How ever over leveraged markets tend to correspond with price neutralization. If the Funding rate (figure 2.0) also increases drastically (notice the recent uptick), then there may be a potential cause for concern (short term).
Funding rate is a barometer for bias and leverage in the open market. If the funding rate increases drastically, and the price is steady (like we were currently seeing before the recent dip) then the market is overleveraged and there may be a possible shake out.
Another cause for concern was that the euphoric state of the market was also pretty high. As witnessed by the social metrics in 2.1. Usually when the market is seeing lots of social volume, high weighted volume, the price tends to (with regards to historic trends) move the opposite direction. When the greed kicks in, begin to take cautious steps.