Bitcoin, Ethereum open interest suggests a squeeze is coming
The two largest cryptocurrencies by market capitalization, Bitcoin and Ethereum, have seen a significant increase in open interest over the past couple of weeks. This comes even when the market is experiencing difficult prices and investors have started to take more conservative positions in the market. The drastic increase in open interest across these two cryptocurrencies could have some significant implications for the crypto market as a whole.
Ethereum Spikes with Bitcoin
Bitcoin open interest has been on the rise for the past couple of weeks, leading to some interesting forecasts for the digital asset, and now Ethereum has started to follow the same trend. Over the past week, Ethereum’s open interest to market value had increased along with bitcoin.
Both digital assets had actually reached new records in this regard, breaking the levels of June 2022. Bitcoin had risen to 3.21% while Ethereum had peaked at around 4.24% during the same time period. So ETH is seeing even more extreme numbers compared to bitcoin.
To put this into perspective, the open interest to market cap ratio of ETH compared to BTC since 2019 has always been around 0.46%, which represents a fairly small margin. However, this has changed in the last two years, and the gap is getting wider.
BTC and ETH open interest reach new ATH | Source: Arcane Research
The Ethereum merger had been the main reason behind this peak. Since interest in the second largest cryptocurrency had peaked as the upgrade approached, institutional investors had started to establish themselves in Ethereum, leading to the large gap now being observed.
Short Squeeze Incoming?
A surge in open interest, especially one that reaches all-time highs, has always had massive implications for the crypto market, even if only in the short term. The current levels suggest that derivatives in both digital assets are very high at the moment, leading to extreme levels of leverage.
BTC price settles above $19,000 | Source: BTCUSD on TradingView.com
With levels this high, it’s important to remember that while a short squeeze is more likely, it could go either way. Eventually, leverage levels will begin to wane, which is when the squeezes are expected to occur. However they ultimately swing, the implications will be equally brutal for the market.
Great market volatility and instability will be the order of the day when this happens. For investors, this is a time to take fewer risks to avoid being caught in this meltdown. The established bear trends and such extreme levels of influence can be a recipe for disaster.
Featured image from CoinDesk, charts from Arcane Research and TradingView.com
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