According to on-chain data, Bitcoin open interest is at dangerously high levels. This could be an indication that a liquidity flush might soon occur.
The Bitcoin Open Interest rises to high values
In a CryptoQuant article, an analyst noted that BTC’s open interest now exceeds the levels at which mass liquidations occurred in the past.
The “open interest” is an indicator that measures the total amount of BTC futures positions currently open on derivatives exchanges. It accounts for both long- and short-term positions.
When the value of the metric is low, it means investors aren’t using much leverage right now. These values are often associated with low volatility in Bitcoin’s price.
The indicator’s high values indicate that users of futures contracts are currently using large amounts of leverage. As big swings in prices can cause liquidation, this situation could lead to market volatility.
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Below is a chart showing how the BTC open rate has changed over the last year.
Recently, the value of this indicator seems to have increased. Source: CryptoQuant| Source: CryptoQuant
The graph above shows that the Bitcoin open-interest value has been increasing in recent weeks.
In the chart, the quant marked the times when the indicator had shown similar high values. It’s clear that at some point after reaching these values, the metric has had a sharp decline.
This suggests that leverage flushes occurred at the time of sudden decline in open interest. This happens when liquidations are triggered by a rise in Bitcoin’s price.
Leverage flushes occurred during the same period as the chart. The crypto price seems to also have fallen with it. This indicates that the previous liquidations involved mainly long positions.
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Since the market seems to be overleveraged right now as hinted by the open interest values, it’s possible a similar liquidation event could take place in the near future.
At the time of writing, Bitcoin’s price floats around $46.7k, down 5% in the last seven days. The coin’s value has dropped 12% over the last month.
The chart below shows how Bitcoin’s prices have changed over the course of the last five business days.
Source: BTCUSD on TradingView| Source: BTCUSD on TradingView
Bitcoin appears to have consolidated in the $45k-50k range over the past week. It’s unclear at the moment when the coin may escape this sideways movement, but if the open interest is anything to go by, a liquidation event may happen soon.
Unsplash.com's featured image. Charts by TradingView.com. CryptoQuant.com chart.