Spike In Bitcoin Open Interest Forecasting A 2021 Bullrun To $69K?

Bitcoin’s momentum is waning in the short-term as it is being rejected below $20,000 and appears to be poised to test previous support levels. While the crypto has enjoyed some short-term bullish prices, however buyers have not been able to drive further. 

Bitcoin (BTC), which trades at $20,000, has been moving in a sideways fashion over the past 24 hours. It also made a profit of 5% in the 7-days since. Other cryptocurrencies in the top 10 by market cap record negative performance and steeper losses than BTC’s price except for Dogecoin and XRP.

BTC’s price moving sideways on the daily chart. Source: View Trading View BTCUSDT

Bitcoin price is influenced by open interest. What are the implications?

NewsBTC reported that the Bitcoin price bullish momentum was being followed by derivatives traders based on Arcane Research data. In Late September and early October, as BTC’s price breached resistance at $20,500, the Open Interest (OI) for future contracts trended to the upside.

The bulls failed to keep their promise and OI fell quickly. The price action led to OI spikes and similar events over the last week. It is usually interpreted to be bearish when the price rises, since it means traders have taken leverage long positions in order to capture momentum.

These leverage positions often provided liquidity, which can push the price opposite to what Bitcoin saw in the past 24 hours. A longer-term rise in Open Interest could lead to significant rallies.

An anonymous analyst claimed that Bitcoin’s Open Interest rose 55% before the 2021 bull run to $69,000. The metric has shown a 45% rise so far. Many are wondering if there will be a similar explosion in crypto markets, as illustrated by the chart below.

On the chart below, the analyst included the following and also added Open Interest.

I’m not saying we’ll get a similar move as per the highlighted area on the chart from 2020. I’m simply showing how an increase in Open Interest does not have to mean a full retrace every time. It’s true that this did happen while we were in this current range.

Bitcoin BTC BTCUSDT Chart 2
Source: @DaanCrypto via Twitter

How Could You Tip off a Large Bitcoin Upside Movement

Analyst believes that an increase or decrease in open interest, accompanied by sell orders and bids in the spot sector could provide clues to potential long-term trends. The spot market supported this downward pressure by supporting Bitcoin’s crash from the previous high of 2022.

This makes it impossible for an aggressive price reverse to occur. Arcane Research has provided additional data that shows an increase in Open Interest starting late 2021. This was supported by spot trading. Bitcoin may see a huge upside trend once the spot selling stops. An analyst speculated that this could be the case.

(…) as long as spot bid (spot selling) stays steady (Very important), then I don’t see an immediate danger for these positions. If price starts trading lower then that’s where you pay attention.

Bitcoin BTC BTCUSDT Chart 3
Source: Arcane Research

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