Bitcoin Open Interest Is Shooting Up: Will Shorts Be Rekt This Time?
August 30 2024 - 10:30AM
NEWSBTC
Data shows the Bitcoin Open Interest on exchanges has been heading
up while the Funding Rate has turned negative recently. Bitcoin
Open Interest Trend Suggests Speculators Are Back As pointed out by
CryptoQuant community manager Maartunn in a new post on X, things
appear to be heating up on the derivatives side of the market.
There are two indicators of relevance here: Open Interest and
Funding Rate. Related Reading: XRP Whales Are Depositing To
Exchanges: Price To Drop Further? The first of these, the Open
Interest, keeps track of the total amount of derivatives contracts
related to Bitcoin, whether short or long positions, that are
currently open on all exchanges. When the value of this metric goes
up, it means the investors are opening up fresh positions on the
market right now. As new positions generally come with an increase
in the overall leverage present in the sector, this kind of trend
can lead to higher volatility for the asset. On the other hand, the
indicator’s value observing a decline implies investors either are
closing up positions of their own volition or are getting
liquidated by their platform. The coin’s price may become more
stable following this trend. Now, here is a chart that shows the
trend in the Bitcoin Open Interest over the past few days: As
displayed in the above graph, the Bitcoin Open Interest had taken a
plunge earlier as a result of the cryptocurrency’s decline towards
the $58,000 level, which had induced the liquidation of a
significant amount of long positions. After observing some sideways
movement, the metric has been on its way back up again, suggesting
investors have been opening new positions. This speculative
activity can naturally lead to more volatility for the asset. In
theory, such volatility can take the asset in either direction, but
depending on the composition of the positions present on the
derivatives market, one direction may be more probable than the
other. The indicator that sheds light on the structure of the
sector is the second metric of interest here: the Funding Rate.
This indicator basically keeps track of the amount of periodic fee
that traders on the derivatives market are exchanging between each
other. From the chart, it’s visible that the Bitcoin Funding Rate
has been negative during this recent Open Interest increase. When
the metric has a negative value, it means the short holders are
paying a premium to the longs in order to hold onto their
positions, so the new positions that have appeared in the sector
recently would be short ones. Related Reading: Polygon On-Chain
Activity Lights Up: MATIC Reversal Incoming? Because of the
short-heavy market, it’s more likely that these investors betting
on a bearish outcome get caught up in a mass liquidation event,
thus taking Bitcoin is a more bullish direction. It only remains to
be seen, though, as to how BTC’s price action would play out in the
coming days. BTC Price Bitcoin had seen a brief rebound above
$61,000 yesterday, but the coin appears to be back down under
$60,000 today. Featured image from Dall-E, Coinalyze.net, chart
from TradingView.com
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