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Bitcoin Open Interest Reaches Dangerously High Values, Leverage Flush Coming?

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

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.

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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

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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

Tags: bitcoinBitcoin Open interestbtcbtcusd

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