Bitcoin Open Interest Rises, Price Breaks A Sideways Trend Soon?
On-chain data shows that Bitcoin open interest has been growing slowly recently, which could lead to more volatility in the price of the crypto.
Bitcoin Open Rate rises as funding rates approach a neutral value
As pointed out by an analyst in a CryptoQuant post, BTC open interest has gained around $500 million in recent days.
The “open interest” is an indicator that measures the total number of BTCUSD positions open on all derivatives exchanges. The calculation takes into account both short and long positions.
When the value of this indicator goes up, it means that investors are opening up more positions on exchanges right now. Since this usually leads to a higher amount of leverage in the market, this type of trend can make the price of Bitcoin more volatile.
On the other hand, the decline in the metric suggests that positions are closing or liquidating on exchanges at the moment. Lower leverage usually leads to a more stable value of the crypto and therefore such a trend can result in less volatility for BTC.
Now, here is a chart showing the trend in Bitcoin open interest over the past few days:
The value of the metric seems to have climbed up in recent days | Source: CryptoQuant
As you can see in the graph above, Bitcoin open interest has seen an increase over the past couple of days.
This increase amounted to about $500 million and took the indicator’s value from $8.15 billion to $8.66 billion.
The chart also contains data for the “funding rates”, a metric that tells us about the distribution of BTC positions between longs and shorts.
This indicator has recently had a slightly negative value, which means that the market is leaning a bit towards a card-dominant environment right now.
In times of high open interest (and thus high leverage), the market becomes more prone to seeing large liquidation events. Such liquidations are the reason for the increased volatility in the market in such periods.
BTC has been mostly moving sideways for the past few days, but as open interest has increased now, it is possible that the crypto could see some new movement soon.
Funding rates may suggest which direction this new price volatility may favor, but since the value of the metric is almost neutral at the moment, it’s hard to say.
At the time of writing, Bitcoin’s price is hovering around $19.7k, down 1% in the last week.
BTC has continued to consolidate sideways during the past week or so | Source: BTCUSD on TradingView
Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com
