Data shows that Bitcoin Open Interest has hit another all-time high (ATH), a sign that more volatility could be coming for BTC.
Bitcoin Open Interest recently reached a new high
As noted by CryptoQuant community analyst Maartunn in a new one after on X, BTC Open Interest has recently surged. The “Open interest” here refers to a metric that tracks the total number of derivatives positions related to Bitcoin that are currently open across all exchanges.
When the value of this indicator increases, it means that the derivatives users are opening new positions in the market. Generally, the total leverage in the sector rises when this happens, so an increase in Open Interest can lead to more inconstancy in the price of the asset.
On the other hand, the metric registering a decline suggests that the investors are either closing positions of their own volition or being liquidated by their platform. The cryptocurrency may become more stable due to this trend due to reduced leverage.
Here is a chart showing the trend in Bitcoin Open Interest over the past few months:
The value of the metric appears to have been heading up in recent weeks | Source: @JA_Maartun on X
As shown in the chart above, the Bitcoin Open Interest has been on an uptrend in recent months, but lately the indicator’s rise has been particularly sharp.
This rapid growth of the indicator, during which it has set record after record, coincided with BTC’s explosive rally to new all-time highs (ATHs). The development is nothing unusual, as periods of sharp price action often attract a lot of attention, and with such interest naturally comes speculation on the stock markets.
However, the magnitude of the increase the indicator has seen could be concerning. Historically, when Open Interest has risen too high, a mass liquidation (colloquially known as a pinch) has generally been followed. In such cases, a price change liquidates a large number of overloaded positions at once, setting off a kind of feedback cycle where the liquidations amplify the price movement and cause even more liquidations.
In theory, the volatility that comes from a squeeze can drive the cryptocurrency in either direction, but in bullish periods, an overheated derivatives market usually unravels into a correction for BTC, as long positions tend to pile up when the price rises.
Over the past few days, Open Interest had cooled off somewhat, but it seems speculators have returned to start the new week as the benchmark has just witnessed another surge. It now remains to be seen how Bitcoin would develop in the coming days and whether another squeeze would occur.
BTC price
At the time of writing, Bitcoin is trading around $90,500, up almost 10% from the past week.
Looks like the price of the coin has been consolidating in the last few days | Source: BTCUSDT on TradingView
Featured image from Dall-E, CryptoQuant.com, chart from TradingView.com