Bitcoin showed bullish momentum during the past day, but the analyst showed how the asset could be in a high-risk area now due to the trend of Open Interest.
Bitcoin Open Interest Has Seen A Rapid Increase Recently
As explained by CryptoQuant community manager Maartunn in a new post on X, Bitcoin Open Interest has recently risen to record highs. “Open Interest” is an indicator that keeps track of the total number of BTC-related positions currently open on all derivatives exchanges.
If the value of this metric increases, it means that investors are opening new positions in the derivatives market. Since the overall average of the sector increases when this trend occurs, it can lead to high volatility in the price of the asset.
On the other hand, a downward trend suggests that the holders of derivatives contracts are closing out positions of their own accord or having their positions forcibly liquidated. This type of trend can lead to more stability for BTC.
Now, here is a chart showing the trend in Bitcoin Open Interest over the past year:
As shown in the graph above, Bitcoin Open Interest had fallen to record lows at the beginning of the month as the price of the asset fell. However, with the recovery of the coin, the index has been showing growth again.
The indicator is now higher, which may mean that the market is overbought. As mentioned earlier, a higher value of the metric can lead to more volatility for BTC. The reason for this is that mass liquidation events are more likely to occur at these levels, making price action more volatile.
On paper, volatility from rising Open Interest can take a coin in either direction, but BTC has shown a consistent pattern over the past year. As the analyst emphasized on the chart, the index entering the same area as now is often found as bearish for Bitcoin in this window.
In these cases, the increase in Open Interest occurred alongside the increase in price, indicating that long positions have been accumulating. Recent growth in the index has also come in the same vein.
“We are in a very risky place, and in my opinion, it is not the best time for new long positions,” Maartunn noted. It remains to be seen how Bitcoin develops in the coming days and if it will reach the top, as it did in those other cases.
BTC price
After the rally in the previous day, Bitcoin was able to find a break above the $66,000 level for the first time in almost two months.
