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On-chain data shows that Bitcoin’s open interest has been growing slowly lately, something that could lead to more volatility in the crypto’s price.
Bitcoin Open Interest Rising as Financing Rates Approach a Neutral Value
As noted by an analyst in a CryptoQuant afterBTC’s open interest has gained about $500 million in recent days.
the “open interest” is an indicator that measures the total number of BTCUSD positions currently open on all derivatives exchanges. The metric takes into account both short and long positions.
When the value of this indicator rises, it means that investors are currently opening more positions on exchanges. Since this usually leads to greater leverage in the market, trends like this can make Bitcoin’s price more volatile.
On the other hand, the decline in the statistic implies that positions are closing or liquidating on exchanges at the moment. Lower leverage usually leads to a more stable value of the crypto, and thus such a trend can result in less volatility for BTC.
Now, here is a chart showing the trend in the outstanding Bitcoin over the past few days:
The value of the metric seems to have climbed up in recent days | Source: CryptoQuant
As you can see in the chart above, Bitcoin’s open interest has seen a rise in recent days.
This increase was approximately $500 million and brought the value of the indicator from $8.15 billion to $8.66 billion.
The chart also includes data for the “financing rates”, a statistic that tells us about the distribution of BTC positions between longs and shorts.
This indicator has recently seen a slightly negative reading, meaning that the market is currently leaning slightly towards a short-dominant environment.
In times of high open interest (and thus high leverage), the market becomes more prone to large-scale liquidation events. Such liquidations are the reason behind increased market volatility during such periods.
BTC has largely moved sideways in recent days, but as open interest rates have now risen, it is possible that the crypto may see new movement soon.
Funding rates may indicate which direction this new price volatility may favor, but given that the metric’s value is currently near neutral, it’s hard to say anything.
At the moment of writing, The price of Bitcoin is floating around $19.7k, down 1% over the past week.
BTC has continued to consolidate sideways during the past week or so | Source: BTCUSD on TradingView
Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com