Bitcoin Open Interest Continues To Rise, Short Squeeze Incoming?

Data from Bitcoin shows that Bitcoin open interest, and estimates of the leverage ratio have been on the rise in recent months. The possibility of a sudden squeeze could result.

Bitcoin Open Interest Rises Despite Decline In Price

A CryptoQuant analyst noted that BTC open interest is up despite crypto’s falling price.

The “open interest” is an indicator that measures the total amount of Bitcoin futures contracts that are currently open in the market.

If the metric’s value rises, this means that more investors open long and short derivative contracts. This could indicate that market leverage is increasing, so this trend may lead to greater volatility in crypto prices.

However, a drop in the indicator means that holders have begun to sell their position. When Bitcoin’s price swing is strong, the indicator drops. This can lead to mass liquidation of contracts.

These liquidations can cascade and increase the price movement. This is known as a “long squeeze” or “short squeeze”, depending on the number of contracts involved.

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Here’s a chart showing the Bitcoin open-interest trend over the last year.

Bitcoin Open Interest

It seems that the indicator's value is trending upward | Source: CryptoQuant

The graph above shows that Bitcoin’s open interest is increasing despite its falling price. This is in contrast to the $69k trend. The majority of Bitcoin open interest was at that point, and the open interests have followed the price.

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This is because the futures indicator has moved against the price and the higher proportion of futures contracts suggests that there are short sellers.

BTC’s Estimated Leverage Ratio Hits New Heights

Another metric, the “Estimated leverage ratio,” measures the average amount of leverage that each futures holder is making use of.

Recent highs in this indicator suggest that short holders may be taking large amounts of leverage risk. This trend is shown in the below chart.

The market's leverage moves up -- Source: CryptoQuant| Source: CryptoQuant

This high level of leverage is historically a sign that there will be a flush sooner than expected. A short squeeze could occur, as the short-holders dominate the derivatives market.

At the time of writing, Bitcoin’s price floats around $41.6k, down 12% in the past week. The chart below shows how Bitcoin’s price has changed over the past five days.

Bitcoin Price Chart

 Source: BTCUSD on TradingView| Source: BTCUSD on TradingView's featured image. Charts by chart.

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