Bitcoin has shown bullish momentum over the past day, but one analyst pointed out how the asset could be in a high-risk zone now due to the open interest trend.
Bitcoin open interest has seen a rapid increase recently
As CryptoQuant Community Manager Maartunn explains in a new report mail On X, Bitcoin’s open interest has just risen to high levels. “Open Interest” is an indicator that tracks the total amount of BTC-related trades currently open on all derivatives exchanges.
When the value of this metric rises, it means that investors are opening new positions in the derivatives market right now. As overall leverage in the sector increases when this trend occurs, it can lead to higher asset price volatility.
On the other hand, a downward indicator indicates that holders of derivative contracts are either closing their positions of their own volition or are being forcibly liquidated by their platform. This type of trend could lead to more stability for BTC.
Now, here’s a chart showing the trend in Bitcoin open interest over the past year:
As shown in the chart above, Bitcoin’s open interest fell to relatively low levels earlier in the month as the asset’s price collapsed. However, as the currency rebounded, the index saw growth again.
The indicator is now high, which could mean that the market has become overleveraged. As mentioned earlier, a higher metric value can lead to more volatility in Bitcoin. The reason behind this is that mass liquidation events can become more likely to occur at these levels, making the price more volatile.
On paper, volatility stemming from increased open interest could take the coin in either direction, but BTC has shown a consistent pattern in the past year. As the analyst pointed out in the chart, the indicator entering the same area as it is now has generally turned out to be bearish for Bitcoin in this window.
In these cases, rising open interest occurred alongside rising prices, suggesting that long positions were accumulating. It is also natural that the recent growth in the index also follows suit.
“We are in a high-risk area and, in my opinion, this is not a good time for new long positions,” says Martin. It remains to be seen how Bitcoin will develop in the coming days and whether it will reach the top, just as it did during those other instances.
Bitcoin price
After last day’s rally, Bitcoin was able to find a break above the $66,000 level for the first time in almost two months.
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