Data indicates that Bitcoin open interest has reached an all-time high (ATH), indicating the potential for more volatility for Bitcoin.
Bitcoin open interest has reached a new high recently
As CryptoQuant community analyst Maartunn noted in a new report mail On X, BTC open interest has been rising recently. “Open interest” here refers to a metric that tracks the total number of Bitcoin-related derivatives positions currently open across all exchanges.
When the value of this indicator rises, it means that derivatives users open new positions in the market. In general, the overall leverage in the sector rises when this happens, so an increase in open interest can lead to greater volatility in the price of the asset.
On the other hand, a metric that registers a decline indicates that investors are either closing their positions voluntarily or being liquidated by their platform. The cryptocurrency may become more stable following this trend, due to lower leverage.
Now, here’s a chart showing the trend in Bitcoin open interest over the past few months:
The value of the metric appears to have been heading up in recent weeks | Source: @JA_Maartun on X
As shown in the chart above, Bitcoin’s open interest has followed an upward trend over the past few months, but recently, the rise in the index has been particularly sharp.
This rapid growth in the index, setting one record after another, coincided with BTC’s massive rise to all-time highs (ATHs). This development is not unusual, as periods of sharp price movement tend to attract a lot of attention, and with this attention naturally comes speculation on the stock exchanges.
However, the magnitude of the increase in the index may be worrying. Historically, whenever open interest rose too high, a mass liquidation event (known as a squeeze) generally followed. In such events, a swing in price causes a large amount of over-leveraged positions to be liquidated simultaneously, initiating a kind of feedback cycle where liquidations amplify the price movement and cause further liquidations.
In theory, volatility generated by stress can take the cryptocurrency in either direction, but in bullish periods, the overheated derivatives market usually collapses in a correction for BTC, as long positions tend to accumulate when the price rises.
Over the past few days, open interest has seen some slowdown, but it appears that speculators are back to start the new week as the gauge has just seen another spike. It now remains to be seen how Bitcoin will develop in the coming days and whether another squeeze will occur.
Bitcoin price
At the time of writing, Bitcoin is trading at around $90,500, up roughly 10% from last week.
Looks like the price of the coin has been consolidating in the last few days | Source: BTCUSDT on TradingView
Featured image by Dall-E, CryptoQuant.com, chart from TradingView.com