Data indicates that indicators related to the Bitcoin derivatives market have risen recently, which could lead to further volatility in the price of Bitcoin.
Bitcoin’s open interest and leverage have increased
As CryptoQuant community analyst Maartunn noted in a new report mail On “Open interest” here refers to a metric that tracks the total number of BTC-related derivatives positions currently open on all centralized exchanges.
Below is the chart shared by the analyst that shows the trend in percentage change in Bitcoin open interest over the past month:
As shown in the chart, Bitcoin’s open interest has seen a sharp positive change recently, which means a large number of positions have emerged in the market. In the chart, Martin highlighted previous instances of the indicator noting a significant percentage increase. It seems that the price generally experienced a slowdown period when this pattern formed over the past month.
As for the reason behind this trend, the answer is that more positions usually mean greater leverage in the sector. A chaotic event known as stress can become more likely to occur in these conditions.
During a squeeze, a large number of positions are liquidated simultaneously and provide fuel for the price movement they caused. Prolonged price action then unleashes a series of additional liquidations.
The pressure is likely to affect the side of the market with more leveraged positions. Previous increases in open interest have come alongside uptrends, so new positions are likely to be long positions. This may be why the market eventually saw a long squeeze to wipe out these excess positions.
It is possible that the recent increase in open interest could also lead to a similar outcome for Bitcoin, since these new positions also came in tandem with the rally. However, it all depends on whether these positions are overleveraged or not.
Unfortunately for cryptocurrencies, this requirement also appears to be met, as estimated leverage ratio data was shared by the author of CryptoQuant IT Tech at X mail suggests.
The estimated leverage ratio, as the name suggests, tells us the average amount of leverage that users choose in the financial derivatives market. Given that this metric has also risen along with increased open interest, new positions emerging could hold significant leverage.
It now remains to be seen how Bitcoin will develop in the coming days, given the potentially overheated conditions that have developed in these derivatives indices.
Bitcoin price
At the time of writing, Bitcoin is trading around $100,400, up more than 2% over the past seven days.