Spike In Bitcoin Open Interest Predicting A 2021 Bullrun To $69K?
Bitcoin loses steam on low timeframes as price rejects $20,000 and looks to retest previous support levels. The cryptocurrency is enjoying a short-lived bullish price action, but buyers have been unable to push further.
At the time of writing, Bitcoin (BTC) is trading at $20,000 moving sideways in the last 24 hours and with a 5% gain in the last 7 days. Other cryptocurrencies in the top 10 by market capitalization are recording negative performance and steeper losses than BTC’s price except for Dogecoin and XRP.
Open interest follows the Bitcoin price, what is the implication?
As NewsBTC reported based on data from Arcane Research, the Bitcoin price’s bullish momentum has been followed by participants in the derivatives sector. In late September and early October, when BTC’s price broke the resistance at $20,500, open interest (OI) for futures contracts went up.
This OI quickly fell as the bulls were unable to follow up the attack. Something similar happened in the last week with OI spiking, led by the price action. The metric is generally perceived as bearish if the price is moving up, as it indicates that traders are taking long positions to chase the momentum.
Larger players often used the liquidity provided by these leveraged positions, pushing the price in the opposite direction, as Bitcoin has seen over the past 24 hours. However, a long-term increase in open interest can lead to major rallies.
According to a pseudonymous analyst, Bitcoin price saw a 55% increase in Open Interest before the 2021 bull run to $69,000. So far, the calculation has seen a 45% increase, leaving many to wonder if the crypto market will see a similar price explosion to upside down, as shown in the diagram below.
The analyst added the following to the chart below and Open Interest:
I am not saying that we will get a similar move according to the highlighted area on the chart from 2020. I am simply showing how an increase in open interest does not have to mean a full retrace every time. It is true that this happened while we were in this current area.
What can hint at a big Bitcoin Upside Move
The analyst believes that an increase or decrease in open interest accompanied by bids/sell orders in the spot sector can provide additional clues to potential sustained trends. In 2022, the price of Bitcoin crashed from its previous all-time high, and this downward pressure has been supported by spot sales.
This prevents an aggressive price reversal from materializing. Additional data provided by Arcane Research indicates an increase in open interest from late 2021, this increase has been supported by spot sales. When the latter stops, Bitcoin could be set for a massive uptrend. About this possibility, the analyst wrote:
(…) as long as spot bids (spot sales) remain stable (Very important), I do not see an immediate danger for these positions. If the price starts trading lower, that’s when you notice.
