Bitcoin Open Interest Soars With Price Rise, Long Pushing?
On-chain data shows that Bitcoin open interest has risen rapidly with the price, a sign that a long squeeze may be coming in the market.
Bitcoin Open Interest has seen a sharp increase recently
As pointed out by an analyst in a CryptoQuant post, funding rates are also very positive right now. The “open interest” is an indicator that measures the total number of Bitcoin futures contracts currently open on derivatives exchanges. This calculation accounts for both short and long contracts.
When the value of this metric shows an increase, it means that BTC investors are opening new positions in the futures market right now. Since more derivative positions generally also mean an increase in leverage in the market, this type of trend can cause the asset’s price to become more volatile.
Related reading: Bitcoin: Why this is the best time to buy crypto, according to R. Kiyosaki
On the other hand, the indicator showing a decline suggests that the holders are closing their futures positions or being liquidated by exchanges. Naturally, the value of the cryptocurrency may go lower following this trend.
Now, here’s a chart showing the trend in the 30-day simple moving average (SMA) Bitcoin open interest over the past week or so:
The 30-day SMA value of the metric seems to have shot up in recent days | Source: CryptoQuant
As shown in the graph above, the 30-day SMA Bitcoin open interest has observed a fairly rapid increase in the last couple of days as the asset’s price has shown a sharp upward trend.
The metric’s value is now around $8.6 billion, which is the highest it has been since about a week ago. Interestingly, when that spike in the indicator took place, both the price and the metric fell sharply shortly after.
Open interest generally declines so rapidly during mass liquidation events known as “squeezes”. These usually take place when a sharp swing in price occurs while the futures market has a large amount of leverage accumulated.
Such a price move liquidates a large number of derivative positions at once, and these liquidations only end up driving the price movement further. Naturally, this heightened price volatility causes even more liquidations, and in this way, liquidations can come crashing down like a waterfall. These mass liquidations are also the main reason why a bullish market can show high volatility.
Now, one way to know which direction a near-future squeeze might be more likely (that is, whether it will involve longs or shorts) is through the Bitcoin Funding Rate Indicator.
This calculation gives us hints about how the market is more dominated right now. The chart below shows the latest trend in the 30-day SMA for this indicator.
Looks like the metric has been highly positive recently | Source: CryptoQuant
From the chart, it is visible that the Bitcoin funding rate has a relatively high positive value at the moment, which suggests that there are more long positions than short ones. Squeezes are usually more likely to involve the more dominant positions in the market, meaning that if a squeeze takes place now, it could potentially be long.
This will naturally be bearish for the price of the cryptocurrency, at least in the short term, as long squeezes generally come with a sharp decline in price.
BTC price
At the time of writing, Bitcoin is trading around $28,600, up 4% in the last week.
BTC has shot up recently | Source: BTCUSD on TradingView
Featured image from Maxim Hopman at Unsplash.com, Charts from TradingView.com, CryptoQuant.com
