Data suggests that Bitcoin’s open interest to market cap ratio has risen alongside the recent rise in the asset’s price to a new all-time high (ATH).
Bitcoin’s open interest to market capitalization ratio is now at its highest level in two years
As X’s Satoshi Club cryptocurrency news account explained mailBTC open interest has been overheating compared to the market cap lately. The interest metric here is the “Ratio of Open Interest to Market Cap” from market intelligence platform IntoTheBlock.
As its name suggests, this indicator tells us how Bitcoin’s open interest compares against its market cap. Open interest refers to a measure of the total amount of BTC-related derivatives positions currently open on all exchanges.
Derivatives contracts are financial instruments that allow investors to bet on Bitcoin price movements without necessarily owning any actual tokens. For this reason, open interest is also sometimes called a measure of the “fiat” BTC held in this sector.
Market cap is the total valuation of the circulating supply of a cryptocurrency at the current exchange rate, so the ratio of open interest to market cap essentially tells us how BTC paper size compares against the spot value of the asset.
Now, here is a chart showing the trend in this indicator for Bitcoin over the past few years:
The value of the metric appears to have been heading up in recent days | Source: @esatoshiclub on X
As shown in the chart above, Bitcoin’s open interest to market cap ratio has seen a sharp rise alongside the recent price surge that has taken the asset to a new all-time high (ATH).
This is an interesting trend, as a rise in market cap should mean that the ratio would be heading down instead as in the denominator, so the fact that it increased regardless means that fiat Bitcoin was simply printed at a faster rate than the market cap. rose.
The indicator is now approaching the 6% mark, which means that there are now enough open derivatives positions to make up 6% of the total cryptocurrency market capitalization. This latest rise in the metric is the highest since November 2022, when the FTX stock market crash occurred.
Historically, a high open interest to market cap ratio has not been a positive sign for Bitcoin, as it indicates an excess of leverage in the sector.
The aforementioned rally in November 2022 triggered a collapse in the asset that would take it to the lowest point of a bear market. A similar slowdown also occurred earlier this year.
It now remains to be seen whether the market cap will be able to grow despite the overheated conditions brewing on the derivatives side, or whether another mass drain of leverage for Bitcoin will follow.
Bitcoin price
Bitcoin is on the cusp of another record high with its price trading around $76,300 at the moment.
Looks like the price of the coin has been in ATH discovery mode recently | Source: BTCUSDT on TradingView
Featured image by Dall-E, IntoTheBlock.com, chart from TradingView.com
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