Data shows that bitcoin open interest has seen a notable cooling recently, something that could be positive for rally hopes.
bitcoin Open Interest Has Cooled Down from Recent Overheated Levels
As explained by an analyst at CryptoQuant Quicktake bitcoin-Open-Interest-Data-Retreats-to-142B-Overheated-Derivatives-Markets-Cool-” target=”_blank” rel=”noopener nofollow”>mail, bitcoin open interest has seen a pullback recently. “Open interest” here refers to a measure of the total number of btc-related derivatives contracts currently open across all exchanges.
When the value of this metric increases, it means that investors are opening new positions in the derivatives market at the moment. Generally, total leverage in the market increases when new contracts emerge, so an increase in open interest could lead to higher asset volatility.
On the other hand, a drop in the indicator implies that derivatives users are closing their positions of their own volition or being forcibly liquidated by their platform. Either way, the market could act more stable after such a decline, due to lower leverage.
Now, here is a chart showing the trend of bitcoin open interest since the beginning of the year:
<img decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/04/Bitcoin-Open-Interest-Has-Cooled-Down-Good-Sign-for-Bulls.png" alt="bitcoin Open Interest” width=”1280″ height=”806″ data-recalc-dims=”1″/>
The value of the metric appears to have taken a significant hit recently | Source: bitcoin-Open-Interest-Data-Retreats-to-142B-Overheated-Derivatives-Markets-Cool-" target="_blank" rel="noopener nofollow">CryptoQuant
As shown in the chart above, bitcoin open interest had risen along with the price as the spot exchange-traded funds (ETF)-driven rally occurred.
In this surge, the indicator had reached a new all-time high above $18 billion, while the value of the cryptocurrency itself had reached a new record. However, extreme levels of open interest have historically been a sign that the market is overheating, so the asset was in a delicate situation at these ATH levels.
What followed the heated market was a notable drop in the currency's value, along with which the Open Interest had also experienced a significant cooldown. Since then, as btc has fluctuated, so has the metric.
The indicator has been jumping between overheating and cooling, and with the recent price drop, its value fell to a low of $14 billion.
Generally, when open interest becomes overheated, the asset is more likely to experience volatility. This strong price action that may emerge could, in theory, take the coin in either direction, but the recent trend has been that open interest has only cooled with a drop in price.
However, the decline of the indicator to lower levels has led to price increases. In the latest decline, open interest briefly hit the lowest levels since early March.
What followed this cooling of the derivatives market was the rally in the price of the cryptocurrency. If open interest does not overheat again, the chances of this rally lasting could be optimistic.
btc Price
bitcoin has been recovering from its drop over the weekend as its price has risen back to $66,300 so far.
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Looks like btc has been going up over the past 24 hours | Source: BTCUSD on TradingView
Featured image by Yiğit Ali Atasoy on Unsplash.com, CryptoQuant.com, TradingView.com chart
