Bitcoin has shown bullish momentum over the past day, but one analyst has pointed out that the asset may now be in a risky zone due to the Open Interest trend.
Bitcoin Open Interest has seen a rapid increase recently
As explained by CryptoQuant community manager Maartunn in a new after on X, Bitcoin Open Interest just rose to a high level. The “Open Interest” is an indicator that tracks the total number of BTC-related positions currently open on all derivatives exchanges.
When the value of this measure increases, it means that investors are currently opening new positions in the derivatives market. Since overall industry leverage increases when this trend occurs, it could lead to greater asset price volatility.
On the other hand, the down indicator indicates that holders of derivative contracts are either closing their positions on their own volition or being forcibly liquidated by their platform. These types of trends could lead to more stability for BTC.
Here is a chart showing the trend in Bitcoin Open Interest over the past year:
As shown in the chart above, Bitcoin Open Interest had cooled to relatively low levels earlier this month when the asset’s price crashed. However, with the recovery of the currency, the indicator shows growth again.
The indicator is now high, which may indicate that the market has taken on too much debt. As mentioned earlier, a high metric value can lead to more volatility for BTC. The reason behind this is that it becomes more likely that mass liquidations will occur at these levels, making the price more volatile.
On paper, the volatility that comes from a rise in Open Interest can move the coin in either direction, but BTC has shown a consistent pattern over the past year. As the analyst has highlighted in the chart, the indicator entering the same zone as now in this window has proven to be generally bearish for Bitcoin.
In these cases, the increase in Open Interest occurred alongside price increases, indicating that long positions had accumulated. The latest growth of the indicator has of course also taken place in the same way.
“We are in a risk zone and in my opinion this is not the best time for new long positions,” Maartunn notes. It remains to be seen how Bitcoin will develop in the coming days and whether it will reach the top just like in those other cases.
BTC price
After last day’s rally, Bitcoin has managed to break above the $66,000 level for the first time in almost two months.
