Data suggests that Bitcoin’s open interest has seen a surge to a new all-time high (ATH) recently, a sign that volatility may be on its way to Bitcoin.
Bitcoin open interest has been on the rise recently
As CryptoQuant founder and CEO, Ki Young Ju, pointed out in a new article mail On X, Bitcoin Open Interest set a new record. “Open interest” here refers to an index that tracks the total amount of BTC-linked derivatives positions open on all centralized exchanges.
Below is the chart shared by Young Ju that shows the trend in this metric over the past few years:
The value of the metric appears to have been heading up in recent days | Source: @ki_young_ju on X
As can be seen in the chart, Bitcoin’s open interest has risen recently, indicating that investors have opened new positions in the market. After the continuation of the recent increase, the index reached a value of $20 billion, which is a new record. As for what this rise might mean for the cryptocurrency’s price, high open interest is generally followed by sharp fluctuations in the asset.
On paper, this volatility could take the coin in any direction, but from the chart, it is clear that peaks in the indicator have, in fact, usually led to peaks for the cryptocurrency.
The source of volatility is usually mass liquidation events, which are likely to occur when the market has a large number of highly leveraged positions.
In another X mailthe CEO of CryptoQuant shared data on Bitcoin’s estimated leverage ratio, which essentially tells us the average amount of leverage users are currently choosing.
Looks like the value of this metric has also been rising recently | Source: @ki_young_ju on X
The estimated leverage ratio is calculated as the ratio between open interest and the total exchange reserve of the underlying asset. In the current case, Young Ju published a version of the indicator that tracks positions that hold Tether’s stablecoin, USDT, as collateral.
Although this certainly does not cover the entire market, this version of the metric can still provide us with a glimpse into the general trend that traders as a whole are following.
As shown in the chart above, Bitcoin’s estimated leverage ratio for the USDT pair has risen recently, meaning investors have increased their appetite for risk.
Thus, with all this leverage, Bitcoin may really be at risk of seeing a volatile explosion. Given that these new emerging positions could be long positions, traders who are betting on a bullish outcome may once again be the ones falling into a volatility trap.
Bitcoin price
Bitcoin crossed the $68,000 level yesterday, but the asset appears to have seen a pullback since then as it is now down to $67,200.
The price of the coin appears to have been riding an uptrend over the last few days | Source: BTCUSDT on TradingView
Featured image by Dall-E, CryptoQuant.com, chart from TradingView.com