On-chain data shows that Bitcoin open interest has been growing slowly lately. Crypto analyst Hououin Kyouma says this could lead to more volatility in the price of the leading crypto. We have prepared the analyst’s explanations and evaluations for our readers.
Bitcoin open interest rises as funding rates approach a neutral value
As one analyst noted in a CryptoQuant post, BTC open interest has gained nearly $500 million over the past few days. “Open interest” is an indicator that measures the total amount of BTC/USD positions currently open on all derivatives exchanges. The metric takes both short and long positions into account.
When the value of this indicator rises, it means that investors are currently opening more positions on the stock markets. This often leads to a higher leverage in the market. Therefore, it is possible that such a trend could make the Bitcoin price more volatile.
On the other hand, the drop in the metric indicates that positions are currently being closed or liquidated on exchanges. Lower leverage often leads to a more stable value of the crypto. Therefore, such a trend would cause less volatility for BTC. Now, here is a trending chart of Bitcoin open interest over the past few days:
The metric value seems to have climbed recently / Source: CryptoQuantAs you can see in the chart above, Bitcoin open interest has seen an uptick over the past few days. This increase was approximately 500 million dollars. This, in turn, increased the value of the indicator from $8.15 billion to $8.66 billion.
“It is possible that Bitcoin will see a new move soon”
The chart also includes data for “financing ratios,” a metric that tells us the distribution of BTC positions between long and short positions. This indicator last had a slightly negative value. This means that the market is currently leaning slightly towards a short-term dominant environment.
During periods of high open interest (and therefore high leverage) the market becomes more prone to see large-scale liquidations. Such liquidations are the reason for increased volatility in the market during these periods.
cryptocoin.com As you can see, BTC has mostly moved sideways over the past few days. But now that open interest is rising, it’s possible that the coin will see a new move soon. Funding rates could show which direction this new price volatility could support. But since the value of the metric is almost neutral right now, it’s hard to say. Meanwhile, at the time of writing, Bitcoin’s price is hovering around $19.8k, down 1% on a weekly basis.
BTC continued horizontal consolidation over the past week / Source: CoinMarketCap
