Data shows that Bitcoin's open interest as a percentage of its market capitalization has been at record lows recently, a sign that the derivatives side has been healthy.
Bitcoin's open interest is now less than 2% of market cap
As analyst James Van Straaten explained in New mail On X, the derivatives side of the market looked “very healthy” while the recent BTC recovery took place.
The metric of interest here is “open interest,” which tracks the total volume of derivatives-based Bitcoin trades currently open on all centralized exchanges.
When the value of this indicator rises, it means that investors are opening more trades in the market at the moment. In general, total market leverage rises when such a trend occurs, so the asset price may end up becoming more volatile afterwards.
On the other hand, a decrease in the metric indicates that users are either closing their positions of their own volition or are being forcibly liquidated by their platform. The cryptocurrency may behave in a more stable manner after this decline.
Now, here's a chart showing the trend in Bitcoin open interest over the past few years:
The value of the metric seems to have been going down in recent days | Source: @jvs_btc on X
In the chart, open interest is displayed as a percentage of the market capitalization of the asset (i.e. the total valuation of the entire circulating supply of Bitcoin at the current spot price).
The index appears to have declined recently and fell below the 2% level. This would indicate that positions in the derivatives market now constitute less than 2% of market capitalization.
From the chart, it appears that the gauge had earlier risen to the highest level as the coin's rally towards a new all-time high occurred. Interestingly, the market value was rising rapidly in this rally, but this ratio was still trending upward, meaning that speculation was growing at a faster rate than the price.
Perhaps this was a sign that the derivatives side was starting to get overheated. In the drawdown that followed the price peak, investors began liquidating, causing the ratio to record a decline.
The recent decline in prices has helped reset the market further, bringing the ratio down to levels not seen since February. Bitcoin has made efforts to recover in the past few days, but so far, the derivatives market has remained quiet. “It's hard to be bearish here,” the analyst says.
It now remains to be seen whether the market's health will continue to look optimistic in the coming days, which may allow the recovery to take another step forward.
Bitcoin price
Bitcoin was back above $65,500 earlier, but the asset has since seen a slight pullback as it is now down to $64,100.
Looks like the price of the asset has been heading up over the last few days | Source: BTCUSD on TradingView
Featured image by André François McKenzie on Unsplash.com, Glassnode.com, chart from TradingView.com
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