According to on-chain data, the Bitcoin open interest is slowly increasing in recent months. This could cause volatility in crypto’s price.
Bitcoin Open Interest Rises, While Funding Rates Approach a Neutral Value
In a CryptoQuant blog post, an analyst noted that BTC’s open interest gained $500,000,000 in the last couple of days.
The “open interest” is an indicator that measures the total amount of BTCUSD positions currently open on all derivatives exchanges. This metric includes both long and short positions.
Investors are likely to open more trades if this indicator is increasing in value. As this can often lead to greater market leverage, it could make Bitcoin prices more volatile.
However, the decrease in this metric indicates that positions on exchanges are being closed or liquidated at the moment. A lower leverage is usually associated with a stable crypto value, so this trend could lead to less volatility for BTC.
Below is a chart that illustrates the Bitcoin open interest trend for the last few hours:
Recent days seem to show an increase in the value of this metric. Source: CryptoQuant| Source: CryptoQuant
You can see that Bitcoin’s open interest increased over the last few days, as you can see from the graph.
This increase amounted to around $500 million and took the indicator’s value from $8.15 billion to $8.66 billion.
The chart also includes data for the “funding rates,” a metric that tells us about the distribution of BTC positions between longs and shorts.
Recently, this indicator had a somewhat negative value. It means that market sentiment is leaning slightly towards a short-dominant environment.
Markets that have high open interest and high leverage are more likely to see large-scale liquidation events. This is why the market experiences increased volatility in such times.
BTC has been mostly moving sideways during the last few days, but since the open interest has jumped up now, it’s possible the crypto could see fresh movement soon.
The funding rates can hint at which direction this new price volatility may favor, but since the metric’s value is almost neutral currently, it’s hard to say anything.
At the time of writing, Bitcoin’s price floats around $19.7k, down 1% in the past week.
Source: BTCUSD at TradingView| Source: BTCUSD on TradingView
Featured Image from Kanchanara, Unsplash.com. Charts by TradingView.com. CryptoQuant.com.