Data shows that Bitcoin derivatives open interest recently reached a new all-time high (ATH). Here’s what that could mean for the asset’s price.
Open interest in Bitcoin has seen a sharp increase recently
In a job On X, CryptoQuant Netherlands Community Manager Maartunn discussed the latest trend in open interest in Bitcoin. THE “Open interest“here refers to the total amount of positions in cryptocurrency-related derivatives products that are currently open on all exchanges.
When the value of this measure increases, it means that investors are currently opening new positions in the market. Generally, the total amount of leverage in the sector increases when this trend forms, which can lead to the price of the asset registering a higher degree of upside. volatility.
On the other hand, a decrease in the indicator suggests that derivatives users are either closing positions of their own violation or are being forcibly liquidated by their platforms. Either way, the coin might become more stable after such a decline, due to the decrease in leverage.
Now here is a chart that shows the trend of Bitcoin Open Interest over the past few years:
The value of the metric seems to have been climbing up over the last few days | Source: @JA_Maartun on X
As seen in the chart above, Bitcoin Open Interest had risen sharply earlier in the year when the price of the cryptocurrency witnessed its rally towards the new ATH.
In this surge, the indicator had exceeded its record value established at the height of the year. Running of the bulls 2021. However, as the price fell into consolidation after the mid-March ATH, the metric also observed a cooling period.
However, with Bitcoin’s latest rally, the trend has reversed again for Open Interest, with investors quickly starting to open new positions. The value of the indicator has now exceeded the peak observed earlier in the year, by far.
It would appear that speculation has made a strong return to the market and, as has often happened historically, these extreme levels of open interest could once again result in strong cryptocurrency price action. Of course, these fluctuations can go either way.
As mentioned earlier, the reason volatility increases after an increase in open interest is due to an increase in leverage. When leverage increases, massive liquidations become more likely in the market. It is these numerous liquidations that can trigger chaos in the market.
In a previous X job, Maartunn had explained how aggregate open interest in the cryptocurrency sector as a whole had moved closer to an ATH. Therefore, it would appear that Bitcoin is not the only coin that has recently seen an increased appetite for speculative activity.
Looks like the metric's value has been going up recently | Source: @JA_Maartun on X
BTC Price
At the time of writing, Bitcoin is floating around $71,000, up more than 4% over the past week.
The price of the coin appears to have registered an uplift in recent days | Source: BTCUSD on TradingView
Featured image from Dall-E, CryptoQuant.com, charts from TradingView.com
