Emily Walker
Recent data indicates that the Bitcoin Open Interest to Market Cap Ratio has increased significantly along with the asset’s recent price surge, reaching a new all-time high (ATH).
Bitcoin Open Interest to Market Cap Ratio Hits a Two-Year Peak
According to the cryptocurrency news account Satoshi Club via a post on X, Bitcoin’s Open Interest has recently outpaced its Market Cap. This analysis focuses on the “Open Interest to Market Cap Ratio” provided by the market intelligence tool IntoTheBlock.
This metric assesses how Bitcoin’s Open Interest measures up against its Market Cap. Open Interest indicates the total number of open derivatives positions for BTC across all exchanges.
Derivatives are financial products that enable investors to speculate on Bitcoin’s price changes without owning the actual cryptocurrency. This is why Open Interest is sometimes referred to as a measure of ‘Paper’ Bitcoin in the market.
The Market Cap reflects the total value of a cryptocurrency’s circulating supply at current exchange rates. Therefore, the Open Interest to Market Cap Ratio indicates how much ‘Paper’ Bitcoin exists in relation to the asset’s actual market value.
The following chart illustrates the trend of this indicator for Bitcoin over recent years:
The chart reveals a notable rise in the Bitcoin Open Interest to Market Cap Ratio coinciding with the asset’s price reaching a new ATH.
This trend is noteworthy since typically, an increase in Market Cap would decrease the ratio, as it is a part of the denominator. The rising ratio suggests that ‘Paper’ Bitcoin has been introduced at a faster rate than the Market Cap can keep pace with.
Currently, the metric has nearly hit the 6% threshold, indicating that there are enough open derivatives positions to account for 6% of Bitcoin’s total Market Cap. This is the highest level for this ratio since November 2022, when the FTX exchange collapsed.
Historically, high values in the Open Interest to Market Cap Ratio have been unfavorable for Bitcoin, signaling excessive leverage in the market.
The peak observed in November 2022 precipitated a crash that drove Bitcoin to its lowest point during the bear market, with a similar downturn observed earlier this year.
It remains to be seen whether the Market Cap can continue to rise under these heated conditions in the derivatives market or if Bitcoin will experience another significant leverage exit.
Current Bitcoin Price
Bitcoin is nearing another record high, currently priced around $76,300.