The crypto market has been making violent swings over the past couple of weeks. The new covid variant, Omicron, certainly contributed to the initial sell-off, bringing down the price of bitcoin by more than 25 percent. Currently, the price is hovering around $48k-$50k, with an overall crypto market cap above 2.2 trillion.
When the price fell below $60k, we hoped it would sustain a crucial level at $53k, which serves as the cost-basis for short-term holders. It is also a huge on-chain support band. But on 3rd December, in just a couple of hours, the price corrected heavily, and more than $2B of BTC longs got liquidated. This totally invalidated our previous thesis, making us rely more on the fundamental macro metrics and data.
It was clear we needed to flush out the leveraged traders. And bring down the large build-up of open interest. In addition to this movement, we also saw very little buying activity in the order books. As a result, the market could not absorb the liquidations, sending the price of BTC to $42k.
The weakness shown by the equity market in the past two weeks should also be factored in to understand the current crypto market dynamics. With rising uncertainty around Omicron and different countries reporting new cases, no one is willing to enter the market in such choppy conditions.
Though we have several factors impacting the price, like open interest dominance and covid variants, it should be noted that the time of recovery in the year has been much faster from each panic movement. It took us 25 weeks to recover from the initial variant in Mar 2020. But it has only taken seven weeks to climb back up from the Delta variant news.
So we need to consider this drawdown as a correction, not a wider market crash. When countries announced lockdown, there was a fundamental shift in how the world was going to work. But that is not the case with the Omicron variant. The global markets have recovered well, and crypto is also nicely catching up.
While the fundamentals of the bitcoin network haven’t moved an inch, the inflation rate is certainly creating fear in the markets. Recently, the government of the United States announced that the inflation rate had hit a 39-year high of 6.8%. When a similar report on the consumer price index was launched in October, the price surged quickly, encouraging investors to use bitcoin as a hedge. But it soon reminded them of the logical consequence of faster inflation and ineffective monetary policy.
Those are the movements we’ve watched over the last couple of weeks that negatively impacted the price of bitcoin, which certainly holds the grip of the entire crypto market. To understand the general market updates, however, we have to consider on-chain data. So here are a few on-chain metrics giving us a macro-perspective and an overall understanding of the state of the market:
On-Chain Cost Basis
If you want to invalidate bearish scenarios and flip bullish, you need to check the on-chain cost basis metric. This is a short-term holder metric, which currently sits at $53k. And we need to see BTC reclaim the support band. If it fails to retest the underside of the band, then we have a short-term bear confirmation based on the data collection on-chain.
Open Interest Dominance
For a couple of months now, we have started seeing the impact the derivatives market can have on the price of BTC. Currently, we see the OI dominance reset to its previous low in May. This means — the market is mostly driven by spot. The healthy clean up of leveraged traders and high OI is a good sign moving forward.
Long:Short Accounts Ratio
It is important to consider how retail is moving the markets. Lately, the number of accounts setting BTC longs far exceeded the shorts, sending the long-short ratio to a new all-time high on Binance. Binance is the largest perpetual market in crypto. After the correction, this has also been reset in a major way.
Funding Rate
The funding rate helps us break down how the market participants are being incentivized. And in some cases, its correlation with open interest leads to major market movement in either direction. Currently, the funding rate went down negative after the flash crash and baselined pretty much the whole week. We want to see an extended period of mixed or negative funding rates as it would help notice that perp traders are facing uncertainty.
Spent Output Profit Ratio (SOPR)
This is an important metric to look at when we are trying to understand the state of the crypto market. It breaks down whether the market participants are selling at a loss or profit. If the market is in a state of profitability, then the SOPR will be greater than one. Below the one mark means investors are booking losses. Right now, we dipped below the crucial level. And we need to see it bounce back up above that one line.
Hash Rate
The bitcoin mining hash rate has reached its previous all-time high of network hash power, making a near-perfect recovery in such a short time frame after the China crackdown. Due to the recent price drawdown, the mining difficulty has also been adjusted. The growth of hash rate is a big plus to the whole network, and it shows how resilient bitcoin truly is.
Source- Blockware Newsletter
All Miners Reserve
When the last major sell-off happened, it was the miners who initiated it. And right now, they are doing no such thing. As bitcoin is hitting new lows, the miners continue to stack more BTC and add to their reserve. We have seen a big uptick in their reserve from mid-November. And we want to see this trend growing and moving forward.
In conclusion, you need to consider these metrics to understand the broader market data and position yourself in the right way. But if Omicron cases rise rapidly like the Delta variant, we cannot rely on any technical or on-chain analysis. In several countries like India and USA, there are already numerous cases of the new variant. So we need to see how fast it will spread and whether or not the current vaccine can fight the virus. Until then, we need to see bitcoin stay over $53k and reclaim $61k to avoid any major corrections.

Born and brought up in India, Karthikeya Gutta is a crypto journalist and freelance contributor for ItsBlockchain. He covers various aspects of the industry with in-depth analysis and research. His passion towards blockchain and crypto ecosystem is mainly because he believes it can really change the world and help millions of people.
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