An analyst has explained how a pattern in Bitcoin open interest that has held for the past month now appears to have been broken.
Bitcoin open interest is now moving against the price
As one analyst explained in a CryptoQuant post, the BTC price had previously been rising alongside increases in open interest. “Open interest” here refers to an indicator that measures the total number of Bitcoin futures contracts that are currently open across all derivatives exchanges.
When the value of this metric increases, it means that users are opening more positions in the futures market at the moment. As leverage generally increases when this happens, the asset price can become more volatile following this trend.
On the other hand, the decrease in the value of the indicator suggests that users are closing their contracts of their own free will or are currently being liquidated by their platforms. Such a trend may lead to the price of the cryptocurrency becoming more stable.
Now, here’s a chart showing the trend in Bitcoin open interest over the past few weeks:
It seems that the value of the metric has been going up in the last few days | Source: CryptoQuant
As shown in the chart above, Bitcoin’s open interest has risen steadily over the past few days. This suggests that investors have been slowly opening more contracts on derivatives exchanges.
Over the last month or so, every time the open interest increased, the price of the cryptocurrency also registered an increase. The quant notes that this would imply that bulls have been dominating the futures market this period, as open interest rising along with price implies that the increase in contracts came from long contract holders.
This pattern held until the rise that BTC had seen a few days ago. This sharp increase in price ended up being only temporary, and as the price crashed, the longs were sold off.
As longs had previously dominated the Bitcoin market, this decline in open interest was quite pronounced, as can be seen on the chart. However, it did not take long for the indicator to recover as it initially rose sharply and then fell back to a gradual growth trend. which has continued to this day.
But as the price has actually been falling over this same period, it would appear that the rise in open interest is now being driven by shorts. This would imply that a market shift may have occurred, as the previously held open interest pattern now appears to be invalid.
“Have the bears returned once more? In any case, extreme precautions should be taken in the current area”, warns the quant.
At the time of writing, Bitcoin is trading around $30,000, down 2% over the past week.
BTC has been struggling recently | Source: BTCUSD on TradingView
Featured image from iStock.com, Charts from TradingView.com, Blockchain.com
This post Bitcoin has broken this pattern of open interest, Quant explains
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