Kaspa Rally Driven by Leverage: Is a KAS Pullback on the Horizon?

Derivative inflows are significant, with open interest rising by 42% in just 24 hours, adding momentum to KAS.
Deteriorating active addresses and weak UTXO signals suggest a need for caution and point toward possible downside risks.
Kaspa [KAS], the layer-1 blockchain token, is attracting investor attention, driven mainly by new capital inflow.
The rally, fueled mostly by derivatives, does not match several on-chain metrics, indicating a potential decline may be coming.

Key Takeaways

Derivative inflows are significant, with open interest rising by 42% in just 24 hours, adding momentum to KAS.
Deteriorating active addresses and weak UTXO signals suggest a need for caution and point toward possible downside risks.
Kaspa [KAS], the layer-1 blockchain token, is attracting investor attention, driven mainly by new capital inflow.
The rally, fueled mostly by derivatives, does not match several on-chain metrics, indicating a potential decline may be coming.

KAS rally faces scrutiny as derivatives surge outpaces on-chain activity

Surging Derivative Inflows Fuel the Rally

Kaspa's derivatives market has experienced a notable growth in inflows, as highlighted by the open interest data from the last day. As of now, the Open Interest (OI)—which indicates the dollar amount of liquidity active in the derivatives sector—shows that Kaspa’s valuation stands at $66.92 million, reflecting a remarkable 42% jump within a 24-hour timeframe.

Of the additional $27.9 million that entered, the majority was driven by bullish traders, as indicated by a positive OI Weighted Funding Rate of 0.0035%.

KAS Open interest weighted funding rate.

Source: CoinGlass

A positive weighted average implies that most funds are coming from investors looking to open new contracts in anticipation of further rallies. However, this surge should be approached with prudence; when a rally is predominantly supported by high leverage rather than organic market strength, the risk of a swift price decline increases.

Caution: On-Chain Data Signals Weakness

On-chain metrics, which reflect user interactions with Kaspa, are warning of potential market caution. A crucial metric is the Unspent Transaction Output (UTXO), which counts the cryptocurrency that has been received but not yet utilized in transactions. A positive UTXO reading indicates accumulation, while a negative reading suggests distribution—meaning investors may not be inclined to hold onto the asset.

Source: Kaspalytics

The count of active addresses has dramatically decreased. Kaspalytics reports a drop from 513,110 unique addresses on November 11 to just 11,770 at present—a staggering decline of about 97.72%. This suggests a waning confidence among investors regarding KAS's long-term potential.

Concurrently, both account balances and overall network activity have diminished, indicating that investors are exercising caution and questioning the sustainability of KAS’s recent rally.

Possible Decline, Yet Consolidation Persists

Evidence of a likely decline is evident in the spot market, especially as retail investors are starting to pull back. Over the past two days, around $1.3 million of KAS has been sold. Nevertheless, AMBCrypto examined the impact of this through non-zero KAS wallets to gauge long-term effects.

Address Count Non-Zero Balance - Kaspalytics

Source: Kaspalytics

Despite the recent sell-offs, the number of wallets holding non-zero KAS balances has remained relatively stable. Kaspalytics notes that 54.84 million addresses still hold KAS, a level that has been consistent since November 1.

This stability is an encouraging sign; even if momentum slows in the near future, a drastic decline in KAS's price seems unlikely.