The Latest Facts About Bitcoin Overheating and Its Impact for Investors

Bittime - Today, Bitcoin reaches a new ATH, but this also raises questions about Bitcoin's potential overheating or conditions in the Bitcoin market which is too hot. 

CryptoQuant analyst Aytekin shared an analysis of various metrics that can help investors understand the temperature of the Bitcoin market. Read this article to find out more!

Investors Concern about Bitcoin Overheating

The main concern for investors right now is whether the Bitcoin market is currently experiencing Bitcoin overheating.

Aytekin explained that to monitor market sentiment, there are several metrics that are less relevant and often misinterpreted, such as open interest and supply in profit.

These two metrics are often used, but you should be careful because they can give wrong signals about actual market conditions.

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Bitcoin Overheating: Open Interest and Supply in Profit Metrics

According to Aytekin, open interest, which measures the number of open contracts in the Bitcoin futures market, is actually difficult to relate directly to the price and overheating of Bitcoin. Movement Bitcoin price actually often affects the level of open interest, not the other way around. 

Aytekin added that as the futures market develops and Bitcoin adoption increases, the level of open interest is expected to continue to increase.

Apart from that, another metric that is also considered less accurate is supply in profit, which shows the total profitability of the Bitcoin network. When Bitcoin price reaches ATH, network profitability often spikes above 95%. 

Even though it is attractive, high profitability conditions like this can trigger massive selling if investors are tempted to take profits. 

Aytekin emphasized that rather than looking at how high the profitability is, it is more important to look at its duration, given that this kind of high profitability can last up to a year in broader market cycles.

Metrics to Measure Bitcoin Overheating

Instead of focusing on open interest and supply in profit, Aytekin suggests two metrics that are more credible in measuring market sentiment, namely funding rate and Spent Output Profit Ratio (SOPR). 

The funding rate reflects the cost between long and short positions in the futures market, and can be an indicator of excessive market optimism. 

According to Aytekin, currently the funding rate still shows Bitcoin market conditions that are not too extreme, which means there are no signs of Bitcoin overheating.

The SOPR metric is used to monitor profitability trends. When combined with a 30-day moving average, SOPR provides a more accurate view of whether investors are taking profits or losses. 

Aytekin emphasized that high profitability is not inherently risky, unless it is accompanied by significant supply movements in the market. So, a stable SOPR level indicates a healthy market, not Bitcoin overheating.

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