bitcoin has shown bullish momentum over the past day, but one analyst has noted that the asset may now be in a high-risk zone due to the open interest trend.
bitcoin open interest has seen a rapid rise recently
As CryptoQuant community manager Maartunn explains in a newx.com/JA_Maartun/status/1839606085663043721″ target=”_blank”> mail At x, bitcoin open interest just hit high levels. “Open interest” is an indicator that tracks the total number of btc-related positions currently open across all derivatives exchanges.
When the value of this metric increases, it means that investors are opening new positions in the derivatives market at the moment. As overall leverage in the sector increases when this trend occurs, it can lead to greater volatility in asset prices.
On the other hand, the indicator heading downwards suggests that holders of derivatives contracts are closing positions of their own volition or being forcibly liquidated by their platform. This type of trend can lead to greater stability for btc.
Now, here is a chart showing the trend of bitcoin open interest over the past year:
<img src="https://technicalterrence.com/wp-content/uploads/2024/09/Bitcoin-Tops-66000-But-Analyst-Warns-Against-New-Long-Positions.png" alt="bitcoin Open Interest” />
As shown in the chart above, bitcoin open interest had cooled to relatively low levels earlier in the month when the asset's price plummeted. However, with the recovery of the currency, the indicator has once again seen growth.
The indicator is now high, potentially implying that the market is overleveraged. As mentioned above, a high metric value can lead to higher volatility for btc. The reason behind this is that mass liquidation events may be more likely to occur at these levels, causing the price to act more volatile.
On paper, volatility arising from a rise in open interest can take the coin in either direction, but btc has shown a consistent pattern over the past year. As the analyst highlighted on the chart, the indicator that entered the same zone as now generally turned out to be bearish for bitcoin in this window.
In these cases, the increase in open interest occurred alongside price increases, indicating that long positions had been building up. Naturally, the latest growth of the indicator has also occurred in a similar way.
“We are in a high-risk area and, in my opinion, it is not the best time for new long positions,” says Maartunn. It remains to be seen how bitcoin develops in the coming days and whether it will rise to the top, just as it did in those other cases.
btc Price
Following last day's rally, bitcoin managed to find a break above the $66,000 level for the first time in almost two months.
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