Data shows that indicators related to the bitcoin derivatives market have been heating up recently, which could lead to increased volatility in the btc price.
bitcoin Open Interest and Leverage Ratio Have Soared
As noted by CryptoQuant community analyst Maartunn in a new <a target="_blank" href="https://x.com/JA_Maartun/status/1867229107794088173″ target=”_blank”>mail On x, bitcoin open interest has seen a sharp rise alongside the asset's performance above the $100,000 level. “Open interest” here refers to a metric that tracks the total number of btc-related derivatives positions that are currently open across all centralized exchanges.
Below is the chart shared by the analyst showing the trend in the percentage change of bitcoin open interest over the last month:
<img src="https://technicalterrence.com/wp-content/uploads/2024/12/Bitcoin-derivatives-market-heats-up-again-prepare-for-impact.jpeg" alt="bitcoin Open Interest” />
As shown in the chart, bitcoin open interest has witnessed a strong positive change recently, implying that a large number of positions have appeared in the market. In the chart, Maartunn has highlighted previous cases where the indicator saw a large percentage increase. It would appear that the overall price experienced a cooldown when this pattern formed over the past month.
As for the reason behind this trend, the answer is that more positions usually imply the presence of a greater amount of leverage in the sector. Under these circumstances, a chaotic event known as compression is more likely to occur.
During a squeeze, a large number of positions are liquidated at once and fuel the price movement that caused them. The prolonged price movement unleashes a cascade of new liquidations.
A squeeze is more likely to affect the side of the market that has the most leveraged positions. Previous increases in open interest coincided with bullish trends, so new positions were likely long. This may be why the market ended up undergoing a prolonged squeeze to eliminate these excessive positions.
It is possible that the latest increase in open interest could also lead to a similar result for bitcoin, as these new positions have also been accompanied by a rally. However, it all depends on whether these positions are overleveraged or not.
Unfortunately for the cryptocurrency, this requirement also appears to be met, as estimated leverage ratio data shared by CryptoQuant author IT tech in an x <a target="_blank" href="https://x.com/IT_Tech_PL/status/1867199786815750429″ target=”_blank”>mail suggests.
<img src="https://technicalterrence.com/wp-content/uploads/2024/12/1734192743_501_Bitcoin-derivatives-market-heats-up-again-prepare-for-impact.jpeg" alt="bitcoin Leverage Ratio” />
The Estimated Leverage Ratio tells us, as its name indicates, the average amount of leverage that users of the derivatives market opt for. Since this metric has also spiked along with the increase in open interest, the new positions that have appeared could have significant leverage.
It now remains to be seen how bitcoin will develop in the coming days, given the potential overheating conditions that have developed in these derivatives indicators.
btc Price
At the time of writing, bitcoin is trading around $100,400, up more than 2% in the last seven days.
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