Data shows that bitcoin's open interest as a percentage of its market cap has been at lows recently, a sign that the derivatives side has been healthy.
bitcoin open interest is now less than 2% of market cap
As analyst James Van Straten explains in a new twitter.com/jvs_btc/status/1786871328693198974″ target=”_blank” rel=”nofollow”>mail On x, the derivatives side of the market looked “extremely healthy” as the latest btc rally took place.
The metric of interest here is “open interest,” which tracks the total number of derivatives-based bitcoin positions that are currently open across all centralized exchanges.
When the value of this indicator rises, it means that investors are opening more positions in the market at this time. Generally, the total leverage in the market increases when such a trend occurs, so the asset price could end up becoming more volatile after it.
On the other hand, a decrease in the metric suggests that users are closing their positions of their own volition or being forcibly liquidated by their platform. The cryptocurrency may behave more stable after such a decline.
Now, here is a chart showing the trend in bitcoin open interest over the past few years:
The value of the metric seems to have been going down in recent days | Source: twitter.com/jvs_btc/status/1786871328693198974/photo/1" target="_blank" rel="nofollow">@jvs_btc on x
On the chart, open interest is shown as a percentage of the asset's market capitalization (i.e., the total valuation of all circulating btc supply at the current spot price).
It seems that the indicator has recently registered a decline and has fallen below 2%. This would suggest that positions in the derivatives market now represent less than 2% of the market capitalization.
From the chart, you can see that the metric had previously peaked as the coin's rally towards a new all-time high occurred. Interestingly, the market capitalization was increasing rapidly in this rally, but this ratio was still trending upward, implying that speculation had been growing at a faster rate than the price.
This may have been a sign that the derivatives side was starting to overheat. In the drawdown that followed the peak price, investors began to get liquidated, leading to the ratio recording a decline.
The most recent price drop had helped reset the market further, reducing the ratio to levels not seen since February. bitcoin has been making a recovery effort in recent days, but so far, the derivatives market has remained quiet. “It's hard to be bearish here,” says the analyst.
It now remains to be seen whether the health of the market will continue to look optimistic in the coming days, thus allowing the recovery to move a step further.
btc Price
bitcoin had broken back above $65,500 earlier, but the asset has since seen a small pullback as it is now down to $64,100.
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Looks like the price of the asset has been heading up over the last few days | Source: BTCUSD on TradingView
Featured image by André François McKenzie on Unsplash.com, Glassnode.com, TradingView.com chart
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