Data shows that bitcoin open interest has risen to extreme levels recently, a sign that a lot of volatility could soon hit the market.
bitcoin Open Interest Has Rising Rapidly Recently
As an analyst at CryptoQuant Quicktake mail As you noted, btc open interest is very high. The “Open Interest” indicator measures the total number of bitcoin futures contracts currently open across all derivatives exchanges.
When the value of this metric increases, investors open new positions in the derivatives market. Since total leverage in the sector typically increases when this happens, the asset is more likely to show volatility after the start of this trend.
On the other hand, a drop implies that holders are closing out their contracts of their own volition or are being liquidated. Generally, the market becomes more stable when leverage decreases. Now, here is a chart showing the trend of bitcoin open interest over the past few years:
<img decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/02/Bitcoin-Open-Interest-Reaches-Alarming-Level-Prepare-for-Impact.png" alt="bitcoin Open Interest” width=”1280″ height=”610″ data-recalc-dims=”1″/>
Looks like the value of the metric has been sharply going up in recent days | Source: CryptoQuant
As shown in the chart above, bitcoin open interest has recently seen a rapid uptrend as the cryptocurrency's price has risen beyond the $52,000 level.
This pattern is nothing out of the ordinary, as sharp price action like what the asset is witnessing right now can attract many speculators to place their bets.
However, it is worth noting the current scale of the indicator, as all of last year's price increases failed to trigger such activity on the derivatives side of the market.
“Open interest can be a powerful rally driver, but it can also be a clear indicator of overheating,” explains the quant in the publication. “In that sense, open interest has been a strong driver of the btc price in 2023 and 2024, but it is now at a level that may be too high.”
The graph shows only three cases in which the indicator value has been higher than the last peak. The first two coincided with the peaks of the bull rally in the first and second half of 2021, while the third occurred around the March 2022 high.
As such, the recent elevated levels of open interest may also be a cause for concern, as they may suggest that the market is in a similar state of overheating. These market conditions are ripe environments for volatile storms to brew, as any sharp swings in price can trigger settlement restrictions.
On paper, this volatility can take the price in any direction, but considering what happened in the three cases above, it is more likely that the price will see a correction.
However, the analyst has also raised another possibility: that Open Interest's current high levels are simply a sign of bitcoin's new era: the era of spot ETFs.
btc Price
At the time of writing, bitcoin is floating around the $52,000 level, up more than 10% in the last seven days.
<img loading="lazy" decoding="async" class="alignnone size-medium aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/02/Bitcoin-Open-Interest-Reaches-Alarming-Level-Prepare-for-Impact" alt="bitcoin price chart” width=”1534″ height=”854″/>
The price of the asset has sharply surged recently | Source: BTCUSD on TradingView
Featured image by Jievani Weerasinghe on Unspash.com, TradingView.com charts, CryptoQuant.com
