Bitrabo Editorial
As Bitcoin (BTC) balances out after dropping to around $52,500, the growth in open interest for the cryptocurrency is not keeping pace with the rising price.
Potential Spot-Driven Relief Rally for Bitcoin
Trader and investor Daan Crypto highlighted a notable trend in Bitcoin’s market activity. In a recent tweet, he observed that while Bitcoin’s price has climbed, the open interest has increased at a slower rate.
The tweet points out that, although BTC has risen by 8.69% from its lows, open interest has only grown by 5.50%. This disparity could have significant implications for the market dynamics.
Daan Crypto commented:
This is actually promising since it suggests that there aren’t many long positions reacting to price changes, indicating that the surge is mainly driven by real market demand. We need this trend to continue for a resilient upward movement.
According to CoinGlass, the total open interest linked to Bitcoin is nearing $30 billion, with about $45 million in positions liquidated within the last 24 hours. As Bitcoin price has been increasing, it’s likely that most liquidated positions were shorts.
Understanding Open Interest Impacts on Bitcoin Prices
Open interest represents the total number of active contracts held by traders in futures or options markets. During a bullish trend, one typically sees an increase in open interest following a price dip, indicating that investors expect further gains.
Conversely, in a bearish scenario, any rise in price is often preceded by a jump in open interest, suggesting traders are anticipating further declines.
Currently, the modest rise in open interest for Bitcoin might mean that traders are hesitant to take long positions, suggesting the recent price increase is likely supported by underlying demand in the spot market.
A rally fueled by spot market activity is generally seen as healthier for sustained price growth, as it reflects genuine buying rather than speculative short-term trades.
Moreover, spot-driven rallies reduce risks of liquidation events that could cause significant price drops. This also indicates that long-term investors find Bitcoin’s current value appealing and are looking to buy while prices are low.
Bitcoin’s current price is $56,762, up 2.1% over the last 24 hours, with the total capitalization of the cryptocurrency market around $2.10 trillion, according to CoinGecko.