Data indicates that Bitcoin’s open interest has seen a sharp increase alongside the rebound seen in the asset’s price.
Bitcoin open interest has been on the rise recently
As CryptoQuant community analyst Maartunn noted in a new report mail On X, Bitcoin’s open interest rose. “Open interest” here refers to an index that tracks the total number of BTC-related derivatives positions currently open on all centralized exchanges.
When the value of this metric rises, it means that traders open new positions in the market. Since the total amount of leverage present in the sector rises when positions increase, this type of trend can lead to greater fluctuations in the price of the asset.
On the other hand, a decrease in the index indicates that derivatives users are either closing their positions of their own volition or are being forcibly liquidated by their platforms. Such a trend could lead to a calmer price movement for the cryptocurrency.
Now, here’s a chart showing the trend in the 24-hour percentage change of Bitcoin’s open interest over the past month or so:
Looks like the value of the metric has been quite positive in recent days | Source: @JA_Maartun on X
As can be seen in the chart above, Bitcoin’s open interest recently recorded a sharp positive change, indicating that investors opened a large number of positions within a short window.
This trend is likely driven by the notable price recovery the cryptocurrency has seen over the past couple of days. Investors find rapid movements in assets exciting, so they tend to engage in more speculation than usual whenever they occur.
As mentioned before, an increase in open interest can cause BTC to become more volatile. The reason behind this is the fact that mass liquidation events become more likely the more leveraged positions there are in the market. Such events can be violent, as all liquidations feed on the price action that caused them.
Some growth in open interest may not be bad for the asset, but when it occurs within a narrow window and is broad enough, the risk of the price being negatively affected can actually be significant.
As the analyst pointed out in the chart, the recent jump in open interest took the percentage change into an area that generally indicated trouble for Bitcoin in the past month.
Given this pattern, it remains to be seen whether the derivatives market will have to experience another slowdown before the asset rally continues.
Bitcoin price
Bitcoin recovered above the $102,000 mark earlier, but the coin appears to have seen a pullback since then, with its price returning to $100,800.
The price of the coin has observed a sharp increase over the last two days | Source: BTCUSDT on TradingView
Featured image by Dall-E, CryptoQuant.com, chart from TradingView.com
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