Bitcoin Open Interest Reaches Dangerously High Values, Leverage Flush Coming?
04 Janvier 2022 - 8:00PM
NEWSBTC
On-chain data shows Bitcoin open interest has reached dangerously
high values, a sign that a leverage flush may be coming soon.
Bitcoin Open Interest Rises To High Values As pointed out by an
analyst in a CryptoQuant post, the BTC open interest has now
reached values where mass liquidations have taken place in the
past. The “open interest” is an indicator that measures the total
amount of BTC futures positions currently open on derivatives
exchanges. The metric accounts for both long and short positions.
When the value of the metric is low, it means investors aren’t
using much leverage right now. Such values usually result in low
volatility in the price of Bitcoin. On the other hand, high values
of the indicator suggest that futures contract users are currently
using a high amount of leverage. This situation can lead to high
volatility in the market as big price swings can result in a
liquidation squeeze. Related Reading | Exchange Whale Ratio
Suggests Bitcoin Dump Incoming Now, here is a chart that shows the
trend in the BTC open interest over the past year: The indicator's
value seems to be on the rise recently | Source: CryptoQuant As you
can see in the above graph, value of the Bitcoin open interest
looks to be climbing up in the last few weeks. The quant has marked
in the chart the previous times the indicator showed similarly high
values. It’s clear that at some point after reaching these values,
the metric has had a sharp decline. The sudden decrease in the open
interest implies that a leverage flush took place at those times.
Such a squeeze happens when liquidations cascade together in
response to a swing in the price of Bitcoin. During such leverage
flush incidents in the period of the chart, the price of the crypto
also seems to have crashed alongside it. This means that those
previous liquidations mostly involved long positions. Related
Reading | Why Did China Ban Bitcoin Mining? Here Are The Seven
Leading Theories 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. BTC Price At
the time of writing, Bitcoin’s price floats around $46.7k, down 5%
in the last seven days. Over the past month, the coin has lost 12%
in value. The below chart shows the trend in the price of BTC over
the last five days. BTC's price seems to have struggled in the last
few days | Source: BTCUSD on TradingView In the past week, Bitcoin
seems to have again started consolidating in the $45k to $50k
range. 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. Featured image from
Unsplash.com, charts from TradingView.com, CryptoQuant.com
Quant (COIN:QNTUSD)
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