Data shows that the ratio of open interest to market capitalization of bitcoin has increased along with the latest rise in the asset's price to the new all-time high (ATH).
bitcoin's open interest to market cap ratio is now at its highest level in two years
As explained by cryptocurrency news account Satoshi Club in an x.com/esatoshiclub/status/1854871745041236113″ target=”_blank” rel=”noopener nofollow”>mailbtc open interest has recently become overheated relative to market cap. The metric of interest here is the “Open Interest to Market Cap Ratio” from market intelligence platform IntoTheBlock.
As its name suggests, this indicator tells us how bitcoin's open interest compares to its market capitalization. Open interest refers to a measure of the total number of btc-related derivatives positions that are currently open across all exchanges.
Derivatives contracts are financial instruments that allow investors to bet on btc price movements without necessarily owning any actual tokens. For this reason, open interest is also sometimes called a measure of the “paper” btc present in the sector.
Market capitalization is the total valuation of the circulating supply of the cryptocurrency at the current exchange rate, so the relationship between open interest and market capitalization basically tells us how the volume of Paper btc compares to the spot value of the asset.
Now, here is a chart showing the trend of this indicator for bitcoin over the past few years:
<img decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/11/Bitcoin-OI-Cap-Ratio-Hits-2-Year-High-Cooldown-Is-Imminent.jpeg" alt="Relationship between open interest and bitcoin market capitalization” width=”1120″ height=”466″/>
The value of the metric appears to have been heading up in recent days | Source:x.com/esatoshiclub/status/1854871745041236113/photo/1" target="_blank" rel="noopener nofollow"> @esatoshiclub on x
As shown in the chart above, bitcoin's open interest to market cap ratio has seen a sharp rise alongside the latest price rally that has taken the asset to a new all-time high (ATH).
This is an interesting trend as the increase in market cap should mean the ratio would go down as it is in the denominator, so the fact that it has gone up anyway implies that the btc paper has simply been printed at a faster rate than market capitalization. resurrected
The indicator has now approached the 6% mark, meaning that there are now enough open derivatives positions to account for 6% of the total cryptocurrency capitalization. This latest high in the metric is the highest since November 2022, when the FTX exchange crash occurred.
Historically, the fact that the open interest to market capitalization ratio is high has not been a positive sign for btc, as it implies that there is excess leverage present in the sector.
The mentioned November 2022 high had caused a decline in the asset that would take it to the bottom of the bear market. A similar cooling had also occurred earlier this year.
It now remains to be seen if the market cap could grow despite the overheated conditions brewing on the derivatives side, or if another massive loss of leverage would occur for bitcoin.
btc Price
bitcoin is on the cusp of another record high, as its price hovers around $76,300 right now.
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Looks like the price of the coin has been in ATH discovery mode recently | Source: BTCUSDT on TradingView
Dall-E Featured Image, IntoTheBlock.com, TradingView.com Chart
