Bitcoin Open Interest Soars Post $69,000: Brace For Impact?

Data shows the Bitcoin Open Interest has shot up to a new all-time high (ATH) following the asset’s break beyond the $69,000 mark.

Bitcoin Open Interest Surge Could Foreshadow Volatility

As pointed out by CryptoQuant community manager Maartunn in a new post on X, the aggregated Open Interest for Bitcoin has observed a strong surge recently.

The “Open Interest” here refers to an indicator that keeps track of the total amount of derivatives positions related to Bitcoin that are currently open on all centralized exchanges.

When the value of this metric rises, it means the investors are opening up new positions in the derivatives market right now. As more positions generally imply more leverage in the sector, this kind of trend can lead to higher volatility for the asset’s price.

On the other hand, the indicator observing a decline suggests some users either have decided to close up their positions or are getting forcibly liquidated by their platform. Such a trend can lead to the cryptocurrency becoming more stable.

Now, here is a chart that shows the trend in the Bitcoin Open Interest over the past month:

The value of the metric appears to have been rising in recent days | Source: @JA_Maartun on X

As is visible in the above graph, the Bitcoin Open Interest has been going up over the last few weeks alongside the recovery rally that the cryptocurrency’s price has been witnessing.

This isn’t particularly unusual, as interest in speculation generally goes up during periods of price appreciation. What may be concerning, however, is the scale of the metric’s rise.

With the latest break above the $69,000 level, the indicator has seen an especially sharp surge, and has set a new record of around $21.8 billion. As mentioned before, the Open Interest going up can make the asset’s price more volatile.

This is because of the fact that mass liquidation events can become more probable to happen, which provide fuel for chaos in the market. Usually, this volatility can go in either direction.

Given that the latest increase in the Open Interest has come alongside an uplift in the Bitcoin price, though, the new positions are likely to be long ones. If these are leveraged positions that users have opened here to bet on a further bullish outcome, then even a small decline can liquidate them.

Their liquidations would only end up feeding back into such a price drawdown, thus elongating its length. As such, the volatility emerging out of the Open Interest increase, if any, may be more probable to take the asset in the bearish direction.

That said, a further price rally would instead end up liquidating the shorts, keeping the surge going. It now remains to be seen which of the scenarios Bitcoin would follow in the near future.

BTC Price

At the time of writing, Bitcoin is trading at around $69,800, up more than 3% over the past week.

Looks like the price of the coin has been riding bullish momentum recently | Source: BTCUSD on TradingView

Featured image from Dall-E, charts from TradingView.com