Bitcoin Open Interest Shoots Up With Price Rise, Long Squeeze Brewing?

Bitcoin Open Interest Shoots Up With Price Rise, Long Squeeze Brewing?

On-chain data shows that Bitcoin open interest is rising rapidly with the price, a sign that a long squeeze may be brewing in the market.

Bitcoin open interest has seen a sharp rise recently

As pointed out by an analyst in a CryptoQuant post, funding rates are also highly positive at the moment. “Open interest” is an indicator that measures the total amount of Bitcoin futures contracts that are currently open on derivatives exchanges. This metric accounts for both short and long contracts.

When the value of this metric shows an increase, it means that BTC investors are opening new positions in the futures market now. As more derivative positions usually also imply increased leverage in the market, this type of trend can lead to the asset’s price becoming more volatile.

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On the other hand, the falling indicator suggests that holders are closing their futures positions or being liquidated by exchanges. Naturally, the value of the cryptocurrency may decline following this trend.

Now, here’s a chart that shows the trend in Bitcoin’s 30-day simple moving average (SMA) on the open for the past week or so:

Bitcoin Open Interest

The 30-day SMA value of the metric seems to have shot up in recent days | Source: CryptoQuant

As shown in the chart above, the open interest of the 30-day Bitcoin SMA has seen a fairly rapid increase over the past few days as the asset price has shown strong upward momentum.

The metric’s value is now around $8.6 billion, the highest value since about a week ago. Interestingly, when this spike in the indicator occurred, the price and the metric both dropped sharply shortly afterwards.

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Open interest often declines so quickly during mass sell-off events called “squeezes”. This usually occurs when a sharp swing in price occurs while the futures market has a large amount of leverage built up.

This price movement liquidates a large number of derivative positions at once, and these liquidations end up fueling this price movement even further. Naturally, this amplified price swing causes even more liquidations, and in this way, liquidations can cascade like a waterfall. These mass liquidations are also the main reason why an overleveraged market can show high volatility.

Now, one way to tell which direction a tightening in the near future might be more likely (i.e. whether it will involve buying or selling) is via the Bitcoin funding rate indicator.

This metric gives us clues as to which way the market is most heavily dominated right now. The chart below shows the recent trend at the 30-day SMA of this indicator.

Bitcoin Funding Fee

Looks like the metric has been highly positive recently | Source: CryptoQuant

From the chart, it is visible that the Bitcoin funding rate has a relatively high positive value currently, which implies that there are more long than short positions. Squeezes are generally more likely to involve the most dominant positions in the market, meaning that if a squeeze occurs now, it could be long.

This would naturally be bearish for the cryptocurrency price, at least in the short term, as long squeezes usually come with a sharp drop in price.

BTC price

At the time of writing, Bitcoin is trading around $28,600, up 4% over the last week.

Bitcoin Price Chart

BTC has shot up recently | Source: BTCUSD on TradingView

Featured Image of Maxim Hopman at, Charts by,

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