Data suggests that Bitcoin’s open interest has been trending higher again recently, a sign that volatility may be coming for the asset’s price.
Bitcoin Binance Open Interest Has Recorded a Significant Increase Recently
As one analyst at CryptoQuant Quicktake explained, mailThe volume of open interest in Bitcoin on Binance has recently risen to $28.3 billion. “Open interest” here refers to a metric that tracks the total number of Bitcoin-related positions currently open on a particular exchange.
When this indicator increases, it means that investors are opening new positions in the stock market now. Generally, increasing positions means increasing leverage in the market, and thus this trend may lead to more volatility in the price of the asset.
On the other hand, a declining indicator indicates that holders are either closing their positions voluntarily or are being liquidated through their platform. Bitcoin may become more stable when this happens due to the decrease in overall leverage.
Now, here is a chart showing the trend in Bitcoin open interest on Binance over the past year:
Looks like the value of the metric has been going up over the last few weeks | Source: CryptoQuant
As shown in the chart above, the open interest in Bitcoin on Binance has been on an upward trend recently, indicating that speculative interest among traders on the platform has been on the rise.
More specifically, the index has gained about $6.8 billion over the past two weeks, bringing the total open interest on the exchange to about $28.3 billion. That’s not far from the all-time high (ATH) the gauge hit earlier this year.
As mentioned earlier, a spike in open interest can lead to more volatility in Bitcoin. On paper, this sharp, trend-driven price move could send Bitcoin in either direction, but as the quantitative analyst highlighted in the chart, recent spikes in open interest on Binance have been generally bearish for the coin.
The source of the volatility in these cases was a large amount of long liquidations, an event popularly called a long squeeze. During a squeeze, mass simultaneous liquidations feed into the price action that caused them, thus prolonging it, and unleashing another series of liquidations.
An indicator that can tell us which side of the derivatives market is likely to see pressure is the funding rate, which measures the amount of periodic fees that derivatives traders currently pay to each other.
The trend in the BTC Funding Rate over the last couple of years | Source: CryptoQuant
The chart shows that the Bitcoin funding rate has been positive recently, indicating that long investors have been paying fees to short investors. Therefore, the long market is currently dominating.
Mass liquidation is likely to affect the side with more positions, so a long squeeze may be in the cards, if there is some market volatility.
Bitcoin price
At the time of writing, Bitcoin is trading around $63,500, up about 10% over the past seven days.
The price of the coin appears to have been rising over the last few weeks | Source: BTCUSDT on TradingView
Featured image by Dall-E, CryptoQuant.com, chart by TradingView.com
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