According to on-chain data, the Bitcoin open interest has been sharply increasing. This is a signal that the market for crypto futures may be in long term decline.
Recent Bitcoin Open Interest Increases have been observed, but Funding Rates remain Positive
An analyst pointed out in CryptoQuant that the futures market could be headed towards a prolonged squeeze within the next few months, as he said.
The “open interest” is an indicator that measures the total amount of Bitcoin futures positions currently open on derivatives exchanges. This indicator includes both long- and short positions.
The metric’s increasing value suggests that users are now opening more positions. Such a trend can lead to higher volatility in the crypto’s price.
A low open interest could mean that positions on stock exchanges will close down. A rapid swing in the price can cause a mass liquidation, sharply taking the indicator’s value down.
Similar Reading: Bitcoin Bearish Signal: The Whale Ratio continues to stay at high value| Bitcoin Bearish Signal: Whale Ratio Continues To Stay At High Value
The price rise is amplified by these liquidations that cascade together. Such an event is called a long or short liquidation “squeeze” (depending on the direction of the price change).
Below is a chart showing how Bitcoin funding rates have changed over the past few weeks.
Source: CryptoQuant| Source: CryptoQuant
The graph above shows that Bitcoin’s open interest has seen a substantial increase over the past few days.
The chart also includes the data of another indicator, the “funding rates.” This metric measures the periodic fee that futures traders have to pay each other.
Positive values indicate that there are more long-term traders on the market right now, as they pay a premium for their position.
Contrarily, a value of negative implies that there is a dominant short sentiment right now. The graph shows that the Bitcoin funding rate appears to be positive at this moment.
The increase in open interest is mainly due to new long positions being opened.
Similar Reading: Bitcoin dominance remains high despite market sell-offs| Bitcoin Dominance Remains High As Market Sell-Offs Settle
A liquidation squeeze is usually triggered by a high level of open interest. A long squeeze can be expected if there is a sharp decline in the price, as longs currently dominate.
BTC Prices
At the time of writing, Bitcoin’s price floats around $30.5k, up 1% in the last seven days. The crypto’s value has fallen 21% over the last month.
The chart below shows how the currency’s price has changed over the course of five days.
Bitcoin's value seems to have risen past $30k | Source: BTCUSD on TradingView
Unsplash.com featured image, Charts from TradingView.com and CryptoQuant.com charts
