Bitcoin Open Interest Sets New Record As Price Plunges To $115,000

Data shows the Bitcoin Open Interest shot up to a new all-time high (ATH) even as the cryptocurrency’s price saw a retrace to $115,000.

As explained by an analyst in a CryptoQuant Quicktake post, the Bitcoin Open Interest has witnessed a sharp surge alongside the latest decline in the price. The “Open Interest” here refers to an indicator that measures the total amount of positions related to BTC (in USD) that are currently open on all centralized derivatives exchanges.

When the value of this metric rises, it means the investors are opening up fresh positions on the market. Generally, the total leverage in the sector goes up when new positions appear, so this kind of trend can lead to more volatility for the cryptocurrency.

On the other hand, the indicator going down suggests the holders are either closing up positions of their own volition or getting liquidated by their platform. Whatever the case be, the asset’s price can behave in a more stable manner after such a trend.

Now, here is a chart that shows how the value of the Bitcoin Open Interest has changed over the last month:

As displayed in the above graph, the Bitcoin Open Interest rose to a high value earlier in the month when the asset’s rally to the new all-time high (ATH) took place. This wasn’t anything unusual, as speculation tends to flood in during periods of exciting price action.

As BTC retraced from its peak and settled into a phase of boring consolidation, the metric’s value calmed down a bit. Now, the coin has finally diverged from this sideways movement, showing a downwards move.

Interestingly, the Open Interest has rocketed up alongside this price plunge and set a new record around $44.5 billion. From the chart, it’s visible that price declines usually accompany drawdowns in the indicator, as longs find liquidation. “It’s unusual for BTC price direction and open interest to move in a negative correlation,” notes the quant.

The spike in the metric could suggest some longs have decided to double down on their bets and some speculators have jumped in to get their shorts in, expecting the downtrend to continue.

As mentioned before, an increase in the metric can amplify price volatility. This happens because the chances of a mass liquidation event taking place go up during such conditions. It now remains to be seen how this Open Interest increase would unwind this time around and whether a long squeeze or a short one would take place.

Bitcoin saw a brief dip under $115,000 earlier, but its price has since retraced a bit as it’s back at $116,000.