Data shows that bitcoin open interest has surged to a new all-time high (ATH) after the asset surpassed the $69,000 mark.
Rising bitcoin Open Interest Could Portend Volatility
As CryptoQuant community manager Maartunn noted in a new post… x.com/JA_Maartun/status/1817815597939401051″ target=”_blank” rel=”noopener nofollow”>mail On x, the aggregate open interest for bitcoin has seen a strong increase recently.
“Open Interest” here refers to an indicator that tracks the total amount of bitcoin-related derivatives positions that are currently open across all centralized exchanges.
When the value of this metric increases, it means that investors are opening new positions in the derivatives market at the moment. As more positions generally imply more leverage in the sector, this type of trend can lead to greater volatility in the asset price.
On the other hand, the indicator observing a drop suggests that some users have decided to close their positions or are being liquidated by the platform. This trend may make the cryptocurrency become more stable.
Now, here is a chart showing the trend in bitcoin open interest over the past month:
<img decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2024/07/Bitcoin-Open-Interest-Surges-Above-69000-Braced-for-Impact.png" alt="bitcoin Open Interest” width=”2697″ height=”1996″/>
The value of the metric appears to have been rising in recent days | Source: x.com/JA_Maartun/status/1817815597939401051/photo/1" target="_blank" rel="noopener nofollow">@JA_Maartun on x
As you can see in the chart above, bitcoin open interest has been increasing in recent weeks along with the recovery that the cryptocurrency's price has been experiencing.
This is not particularly unusual, as interest in speculation usually increases during periods of price appreciation. What may be worrying, however, is the scale of the indicator's rise.
With the latest break above the $69,000 level, the indicator has seen a particularly sharp rise and set a new record high of around $21.8 billion. As mentioned above, increased open interest can make the asset price more volatile.
This is because mass liquidations are more likely to occur, fueling chaos in the market. Typically, this volatility can go in either direction.
However, since the latest increase in open interest occurred alongside a rise in the price of bitcoin, it is likely that the new positions are long. If these are leveraged positions that users have opened here to bet on a further bullish outcome, then even a small drop can liquidate them.
Their liquidations would only end up fuelling that price decline, thus lengthening its duration. Therefore, the volatility arising from the increase in open interest, if any, is more likely to push the asset in a bearish direction.
That said, a further price rally would eventually liquidate short positions, which would sustain the rally. It now remains to be seen which of the scenarios bitcoin will follow in the near future.
btc Price
At the time of writing, bitcoin is trading at around $69,800, up more than 3% from last week.
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Looks like the price of the coin has been riding bullish momentum recently | Source: BTCUSD on TradingView
Featured image by Dall-E, charts from TradingView.com
