Data shows that the bitcoin futures market is starting to overheat again, which could lead to increased volatility in the asset’s prices.
bitcoin Open Interest Has Increased Recently
As an analyst at CryptoQuant Quicktake mail As explained, open interest has seen some increase over the past month. “Open interest” is an indicator that measures the total number of bitcoin futures contracts currently open across all derivatives exchanges.
When the value of this metric increases, it means that investors are opening more positions in the futures market at this time. Since new positions typically come with higher leverage, this trend may increase overall leverage in the sector. This can make the price of the cryptocurrency more volatile.
On the other hand, the decrease in the indicator implies that investors are closing their contracts or being liquidated. This type of trend usually causes the asset to become more stable.
Now, here is a chart showing the trend of bitcoin open interest over the past year:
<img decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2023/10/Bitcoin-Futures-Overheat-Again-Volatile-Storm-Coming.png" alt="bitcoin Open Interest” width=”1280″ height=”603″/>
Looks like the value of the metric has been heading up in recent days | Source: CryptoQuant
As shown in the chart above, bitcoin open interest had fallen to relatively low levels in August. Still, the metric began to change again in September and has since risen appreciably.
On the chart, the quant has highlighted the indicator zone where the risk of the price showing strong volatility becomes particularly high. It would appear that while open interest has increased recently, it is still just below this historic zone.
Interestingly, every time the indicator entered this zone over the last year, it came out with a sharp drop. These falls have been due to the appearance of “liquidation pressures”.
A liquidation squeeze is an event where a sudden price change liquidates a large number of contracts at once. These liquidations only help fuel the movement of this price, resulting in even more liquidations. This way, liquidations can cascade and thus open interest falls naturally.
The analyst has also attached short- and long-term settlement data in the same graph. There would appear to be more long restrictions than short ones in this period.
bitcoin open interest may be the one to watch in the coming days, as the metric entering within the volatility zone could lead to sharp price action for the asset.
In theory, any volatility that may arise can go in either direction, but last year’s precedent may suggest that a prolonged contraction (and therefore a price decline) is more likely.
btc Price
At the time of writing, bitcoin is trading at around $27,100, down 1% over the past week.
<img decoding="async" class="alignnone size-medium aligncenter" src="https://www.tradingview.com/x/Wjoj9JsW/" alt="bitcoin price chart” width=”1534″ height=”869″/>
The coin seems to have registered some drawdown in the last few days | Source: BTCUSD on TradingView
Featured image by Kanchanara on Unsplash.com, TradingView.com charts, CryptoQuant.com
