As Bitcoin (BTC) recovers from its recent lows around $52,500, open interest in the digital asset is rising much slower than the asset’s price.
Bitcoin price rise may be driven by forex market
Cryptocurrency trader and investor Daan Crypto made an interesting observation about Bitcoin’s open interest and the asset’s price action. In mail Posted on X, A crypto trader notes that Bitcoin’s open interest is lagging behind the asset’s price.
According to the post, while BTC is up 8.69% from its recent lows, the corresponding open interest is up 5.50%. The difference between BTC’s price rise and open interest could have multiple implications for the health of the market.
Daan Crypto refers to:
This is generally good because it shows that there is not a lot of positioning by traders chasing price and that the move is primarily driven by the spot price. We need this to remain the case for a sustainable upside move.
per Data According to crypto futures trading platform CoinGlass, total open interest tied to Bitcoin currently stands at nearly $30 billion, with just over $45 million of positions liquidated in the past 24 hours. Given that Bitcoin’s price has been on an upward trend since yesterday, it’s likely that most of those liquidated were holding short positions.
What impact does open interest have on the price of Bitcoin?
Open interest refers to the total volume of contracts or outstanding positions held by market participants in the futures or options markets. Let’s say the underlying asset is experiencing upward momentum.
In this case, any decline in price is usually followed by a significant increase in open interest, indicating that market participants have long positions and expect the asset to continue its upward trajectory.
The opposite occurs during bearish momentum, when any short-term rise in the price of an asset is followed by a rise in open interest, usually indicating that traders are holding a short position and expecting the asset to fall further.
In the context of the current momentum in Bitcoin’s price, the relatively small increase in open interest may indicate that speculators are not very keen on holding the asset yet, meaning the price increase may be driven by organic demand in the spot market.
The height that a spot leads to is usually considered correct For a sustained rise in price because it reflects organic buying interest rather than speculators hoping to make a quick profit through short-term leveraged trading.
In addition, the rise in spot prices means a lower probability of liquidation. Waterfalls Which can have a domino effect on the price of the underlying asset, leading to significant declines.
This also means that long-term investors view Bitcoin as undervalued at current market prices and are taking advantage of low prices to accumulate Bitcoin.
Bitcoin is trading at $56,762 at press time, up 2.1% in the last 24 hours. The total cryptocurrency market cap is nearly $2.10 trillion, according to Data From CoinGecko.
Featured image from Unsplash.com, chart from TradingView.com