Things might be about to get choppy.
Ok, strap in. We're about to get nerdy.
Brains may wrinkle (ours certainly did), but stick with us...we might need the support.
So, crypto prices could get a little choppy in the coming days/weeks - here's why:
Right now, there are a lot of people placing bets on whether crypto markets will go up, or down - and a lot of them are using borrowed money to do so.
The more bets that are made, the more 'open interest' there is in the markets. Which sounds great! The more interest in crypto the better, right? Not necessarily.
As of this writing, all of the Ethereum in the world is worth about $187B and there's currently ~$5B of active bets being made (aka 'open interest') on whether that value ($187B) will increase or decrease.
Another way of saying that is: for every 1 ETH in existence, there's a bet worth .028 ETH on whether it will become more valuable, or not.
Ok, they're just numbers - who cares, and why?
The higher the ratio, the more volatile the markets become.
It works like this:
Statistically, some of these bets will fail. When they do, the folks that made them will need to sell their ETH to cover what they owe. And when they sell, it brings the ETH price down juuust a little.
Too much selling and the price will dip and/or crash.
So here's the problem: the amount of open bets are climbing - in fact they're reaching record highs! Meaning the chances of the above scenario happening is increasing .
It's not great, but the good news is - it's a short term problem.
Phew! Ok, we got through it...you good? We need to calm our nerves.
Can someone find us a monotone podcast to listen to?
(Sam Harris, Lex Friedman or literally anything from NPR will do).