Bitcoin Open Interest Growth Lags As Price Rebounds: Here’s What It Means For BTC
As Bitcoin (BTC) rebounds from its recent lows around $52,500, there’s a noticeable discrepancy between the rise in the digital asset’s price and the slower increase in open interest.
Bitcoin Relief Rally Could Be Spot-Driven
Cryptocurrency trader and investor Daan Crypto has provided some valuable insights regarding Bitcoin’s open interest and its price movements. In a recent post on X, he highlighted that while Bitcoin’s price has risen by 8.69% from its recent trough, the open interest has only increased by 5.50%. This disparity may suggest several things about the market’s current status.
“This is generally good as it shows there’s not as much positioning by longs chasing price and that the move is primarily spot-led. Need it to stay that way to get a sustainable move up,” Daan Crypto noted.
According to data from CoinGlass, a cryptocurrency futures trading and information platform, the total open interest linked to Bitcoin hovers around $30 billion. In the past 24 hours, approximately $45 million worth of positions have been liquidated. Given Bitcoin’s upward trajectory since yesterday, it is likely that most liquidated positions were shorts.
What Implications Does Open Interest Hold For Bitcoin Price?
Open interest represents the total volume of outstanding contracts or positions that market participants hold in futures or options markets. When an asset shows bullish momentum, a price drawdown often results in increased open interest, suggesting that market participants are taking long positions in anticipation of further price increases.
Conversely, during bearish momentum, any temporary price increase is usually followed by a rise in open interest, indicating that traders are holding short positions and expect further declines. In the current scenario with Bitcoin, the modest increase in open interest could signify that speculators are cautious about going long, implying that the recent price increase is driven more by organic demand in the spot market.
A spot-led rally is generally seen as healthier for a sustained price rise. This is because it reflects genuine buying interest rather than speculative traders seeking quick profits through leveraged positions. A spot-driven rally reduces the risk of liquidation cascades, which can dramatically impact the asset’s price and result in severe drawdowns.
Moreover, a spot-led rally indicates that long-term investors perceive Bitcoin as undervalued at current market prices and are seizing the opportunity to accumulate more BTC. This adds a layer of stability to the market, as long-term holders are less likely to engage in short-term selling, thereby supporting the asset’s price.
As of now, Bitcoin is trading at $56,762, marking a 2.1% increase in the past 24 hours. The total cryptocurrency market capitalization stands at nearly $2.10 trillion, according to data from CoinGecko.
