The price of bitcoin has risen in recent days, returning to the lofty levels it once occupied at the beginning of the year. Interestingly, not only has the price of btc increased, but the coin's open interest has also seen significant growth in recent days.
bitcoin open interest, depending on its movement, can often indicate the price trajectory of btc in the near future.
bitcoin Open Interest Soars to $12 Billion
According to the latest on-chain data, bitcoin open interest has been increasing rapidly on several exchanges, corresponding with the recent price increase. This metric tracks the amount of money invested in btc derivatives at any given time.
btc/chart/derivatives/open-interest?exchange=all_exchange&symbol=all_symbol&window=DAY&sma=0&ema=0&priceScale=log&metricScale=linear&chartStyle=line” target=”_blank” rel=”noopener nofollow”>CryptoQuant Data shows that the coin's open interest exceeds $11.68 billion as of Friday, February 9. What's more interesting is that this figure represents the highest value of the metric since May 2022, coinciding with the infamous collapse of the Terra Luna ecosystem.
A pseudonymous analyst, in a CryptoQuant Quick Release, offered insight into the recent rise in open interest and how it could impact the price of btc. While he noted that the recent rise in bitcoin open interest could “suggest an overheated level in the near term,” the analyst noted that the current funding rate somewhat dispels this argument.
<img decoding="async" class="aligncenter wp-image-280313 size-large" src="https://technicalterrence.com/wp-content/uploads/2024/02/Bitcoin-open-interest-hits-highest-level-since-2022-what39s-next.webp.png" alt="bitcoin” width=”980″ height=”414″ srcset=”https://bitcoinist.com/wp-content/uploads/2024/02/9quME_e31df6ca67b7e6390cb4e019f9a614ec44caafec9956f6b46eb2392846213809.webp?w=1280 1280w, https://bitcoinist.com/wp-content/uploads/2024/02/9quME_e31df6ca67b7e6390cb4e019f9a614ec44caafec9956f6b46eb2392846213809.webp?w=640 640w, https://bitcoinist.com/wp-content/uploads/2024/02/9quME_e31df6ca67b7e6390cb4e019f9a614ec44caafec9956f6b46eb2392846213809.webp?w=768 768w, https://bitcoinist.com/wp-content/uploads/2024/02/9quME_e31df6ca67b7e6390cb4e019f9a614ec44caafec9956f6b46eb2392846213809.webp?w=980 980w, https://bitcoinist.com/wp-content/uploads/2024/02/9quME_e31df6ca67b7e6390cb4e019f9a614ec44caafec9956f6b46eb2392846213809.webp?w=750 750w, https://bitcoinist.com/wp-content/uploads/2024/02/9quME_e31df6ca67b7e6390cb4e019f9a614ec44caafec9956f6b46eb2392846213809.webp?w=1140 1140w” sizes=”(max-width: 980px) 100vw, 980px” data-recalc-dims=”1″/>
A chart showing btc's open interest and funding rate | Source: CryptoQuant
For context, the funding rate is a periodic payment between long or short traders to ensure that the price of a perpetual contract remains close to the spot price of the underlying asset (bitcoin, in this scenario). Positive funding rates indicate that long traders are paying shorts, while negative funding rates suggest the opposite.
According to the author of the Quicktake post, the funding rate is positive but does not indicate significant overheating. The analyst added:
This indicates that the relationship between long and short investors is not abnormally skewed, resembling the steady rally seen in October-November 2023.
However, the CryptoQuant analyst warned that a sudden rise in bitcoin's funding rate to 0.05 could result in a prolonged squeeze. A long squeeze usually occurs when long traders are forced to sell their positions to cover losses, resulting in a sharp drop in the asset's price.
Ultimately, the increase in open interest is a positive development for the price of bitcoin, especially since historical patterns show that the value of btc tends to move in the same direction as its open interest.
btc Price
At the time of writing, the price of bitcoin sits just above $47,200, reflecting a 4% increase over the past day.
bitcoin price holds steady above $47,000 on the daily timeframe | Source: BTCUSDT chart on TradingView
Featured image from iStock, chart from TradingView
