The data shows that Bitcoin Open Interest has seen a new all-time high (ATH) recently, a sign that volatility may be established in BTC.
Bitcoin Open Interest has been on the rise recently
As noted by CryptoQuant founder and CEO Ki Young Ju in a new post on X, Bitcoin Open Interest recently set a new record. “Open Interest” here refers to an index that tracks the number of BTC-related derivative positions that are open on all central exchanges.
Below is a chart shared by Young Ju that shows the trend in this metric over the past few years:
The value of the metric appears to have been heading up in recent days | Source: @ki_young_ju on X
As seen in the graph, Bitcoin Open Interest has been increasing recently, indicating that investors have been opening new positions in the market. After the recent continuation of the increase, the index reached the value of 20 billion dollars, which is a new record. As for what this rise might mean for the price of the cryptocurrency, high Open Interest is usually followed by sharp volatility in the asset.
On paper, this volatility can take the coin in any direction, but from the graph, it is clear that the peaks of the index, in fact, tend to lead to the peaks of the cryptocurrency.
The source of volatility is often mass liquidation events, which may occur when the market has a large number of positions with high leverage involved.
In another X post, CryptoQuant CEO shared Bitcoin Estimated Leverage Ratio data, which basically tells us about the average amount of leverage users currently prefer.
Looks like the value of this metric has also been rising recently | Source: @ki_young_ju on X
The Weighted Ratio is calculated as the ratio between the Open Interest and the specified exchange rate of the underlying asset. In the current case, Young Ju posted a version of the index that tracks positions with Tether’s stablecoin, USDT, as collateral.
Although this does not cover the entire market, this version of the metric can still give us an indication of the general trend followed by traders as a whole.
As shown in the graph above, the Bitcoin Estimated Leverage Ratio of the USDT pair has recently increased, which means that investors have increased their risk appetite.
So, with all this upside involved, BTC could be really vulnerable to seeing a volatile explosion. Considering that these newly emerging positions may be long positions, traders betting on a bullish outcome may also be the ones to get caught in the volatility.
BTC price
Bitcoin broke above the $68,000 level yesterday, but the asset seems to be seeing a pullback from there as it has now dropped to $67,200.
The price of the coin appears to have been riding an uptrend over the last few days | Source: BTCUSDT on TradingView
Featured image from Dall-E, CryptoQuant.com, chart from TradingView.com