Elevated Bitcoin Open Interest Levels Puts Market In Vulnerable Position

Bitcoin is still in an uncertain position despite multiple recoveries exceeding $23,000. The reason is that even though the market has recovered, it still does not guarantee the continuation of the bull trend. Instead, the market has fallen from recent selling and buying woes. It is easy for bitcoin to lose their position, as shown by the open interest in bitcoin.

The Bitcoin Open Interest remains elevated

The bitcoin open interest is on the rise for the last week. This market was booming after it surpassed 300k in the week before. This also highlighted some other peculiarities in the current bitcoin bull market.

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The crypto market is highly leveraged, as evidenced by the high bitcoin-denominated open interests. High leverage puts digital assets in danger, just as with all markets. The market could go either way, resulting in either a short squeeze of a prolonged squeeze. Whatever case it may be, the result is often the same. There are substantial price swings in both directions.

Bitcoin price chart from TradingView.com

 Source: BTCUSD on TradingView.com| Source: BTCUSD on TradingView.com

It is likely bitcoin will end in a prolonged squeeze, given the price movement. The price would drop to $20,000. But if the off chance that it does end in a short squeeze, then bitcoin’s price could very well revisit $25,000.

Lower Funding Rates

When the funding rates returned to normal levels, last week saw some market bullish sentiment. This is a welcomed change considering that funding rates were swinging lower than neutral for weeks.

As bitcoin funding rates began to swing into the negative, it would appear that the positive recovery wouldn’t last more than a week. The graph shows that it has fallen straight from neutral. This indicates that traders are returning to safer trades.

Bitcoin funding rates

Funding rates are below neutral Source: Arcane Research| Source: Arcane Research

However, it is remarkable that funding rates are still at higher levels despite the fall in them. The prospects are better than the June month, where funding rates were always below neutral.

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This shows that bitcoin traders haven’t completely written off digital assets, even though they are more cautious. This improvement in market sentiment has shone through in bitcoin’s recent recovery. To see this improvement, however, it would be necessary for funding rates to reverse.

Featured image taken from GoBankingRates. Charts from Arcane Research and TradingView.com.

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