A new analysis from CryptoQuant reveals how traders can pinpoint when Bitcoin’s recent deleveraging phase may be nearing its end. Open Interest (OI) has fallen by a significant 12.4%, indicating a widespread reduction in leveraged trading activity, often referred to as a market “reset.” This decline suggests that the correction’s worst might be over. CryptoQuant recommends combining two key indicators: the Estimated Leverage Ratio (ELR), which measures current leveraged sentiment, with Moving Averages (MAs). This combination offers valuable insight into market reversals and potential shifts in leverage trends. 3 specific signals indicate the end of this phase:
1. **Bullish Crossover (Reversal Signal):** When the 7-day EMA crosses above the 50-day SMA, it signifies a shift from short-term downturns to a stronger bullish trend. 2. **7-Day EMA Above 50-Day SMA (Trend Confirmation):** This sustained positioning of the shorter-term average over the longer-term average indicates market strength and rising leverage levels. 3. **Price Above 50-Day SMA (Confidence Recovery):** As Bitcoin’s price consistently trades above the 50-day SMA, this reinforces a positive market trend and signals renewed confidence following the deleveraging phase.
CryptoQuant emphasizes that these combined signals provide a comprehensive assessment of when corrections may be over. As OI stabilizes and these technical patterns emerge, the likelihood of a leverage-driven recovery increases. This approach helps traders gain deeper insight into Bitcoin’s market cycles beyond just volatility readings, leading to more informed trading decisions.