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Noise was everywhere.
The sound of steam from the coffee maker.
The overtly creepy old man hitting on the young female barista.
The couple a few stools over making plans for their trip to Europe.
But I heard nothing…
One moment I was distracted by sensory overload, the next I was in my own world.
Never doubt what a strong cup of coffee can do to your focus.
Next thing I knew, the US market was closed, and my work day done. I flipped through my charts one last time, added a few notes, and got up to leave.
As I did, I paused before opening the door. Above me hung an all too familiar quote from a Bukowski poem:
It needn’t be much, just a spark.
A spark can set a whole forest on fire.
Just a spark.
I smirked. How fitting that is today.
The reason being, Bitcoin’s market structure at present looks like a powder keg in search of such a spark to ignite volatile price action.
Let me show you what’s brewing beneath the surface of the recent $70,000 reclaim.
The Powder Keg
Below is a picture of the Bitcoin market’s powder keg.
It’s the amount of open interest in the perpetual markets as measured in USD. As we see, it’s gone absolutely parabolic since May 1st, which was when it bottomed out around $3.98 billion, having since moved up by 50% to surpass the March highs over $6 billion.
The reason this is a powder keg is because these positions can be liquidated with force. What I mean by that is if price reaches certain levels, the owners of these contracts can be forced to automatically buy back their positions if short, or sell if long.
This setup for these conditions is high open interest. It often precedes major moves in both directions and acts like an accelerant on price when perpetual players are squeezed out of the market during a trend change.
We can look back just over the last few months to see two examples of these washouts. And in both examples, high volatility followed:
Late February when BTC broke past $60,000 in a parabolic fashion and wiped out billions of short OI en route to new ATHs.
Mid-April when BTC dropped from $70,000 to $60,000 over the weekend and liquidated billions of dollars worth of longs.
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