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

Keshav Verma

3 years ago

3 mins read

Reason to trust

Strict editorial policy that focuses on accuracy, relevance, and impartiality

Created by industry experts and meticulously reviewed

The highest standards in reporting and publishing

How Our News is Made

Strict editorial policy that focuses on accuracy, relevance, and impartiality

Ad discliamer

Morbi pretium leo et nisl aliquam mollis. Quisque arcu lorem, ultricies quis pellentesque nec, ullamcorper eu odio.

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.

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

Keshav Verma

Keshav is currently a senior writer at NewsBTC and has been attached to the website since June 14, 2021.

Keshav has been writing for many years, first as a hobbyist and later as a freelancer. He has experience working in a variety of niches, even fiction at one point, but the cryptocurrency industry has been the longest he has been attached to.

In terms of official educational qualifications, Keshav holds a bachelor’s degree in Physics from one of the premier institutes of India, the University of Delhi (DU). He started the degree with an aim of eventually making a career in Physics, but the onset of COVID led to a shift in plans. The virus meant that the college classes had to be delivered in the online-mode and with it came free time for him to explore other passions.

Initially only seeking to make some beer money, Keshav unexpectedly landed clients offering real projects, after which there was no looking back. Writing was something he had always enjoyed and to be able to do it for a living was like a dream come true.

Keshav completed his Physics degree in 2022 and has been focusing on his writing career since, but that doesn’t mean his passion for Physics has ended. He eventually plans to re-enter university to obtain a masters degree in the same field, but perhaps only to satiate his own interest rather than for using it as a means to find employment..

Keshav has found blockchain and its concepts fascinating ever since he started going down the rabbit-hole back in 2020. On-chain analysis in particular has been something he likes to research more about, which is why his NewsBTC pieces tend to involve it in some form.

Being of the science background, Keshav likes if concepts are clear and consistent, so he generally explains the indicators he talks about in a bit of detail so that the readers can perhaps come out having understood and learnt something new.

As for hobbies, Keshav is super into football, anime, and videogames. He enjoys football not only as a watcher, but also as a player. For games, Keshav generally tends towards enjoying singleplayer adventures, with EA FC (formerly FIFA) being the only online game he is active in. Though, perhaps due to being ultra-focused on the game, he is today a semi-pro on the EA FC scene, regularly participating in tournaments and sometimes even taking back prize money.

Because of his enthusiasm for anime and games, he also self-learned Japanese along the way to consume some of the untranslated gems out there. The skill didn’t merely remain as just a hobby, either, as he put it to productive use during his exploration for small-time gigs at the start of COVID, fulfilling a couple of Japanese-to-English translation jobs.

Keshav is also big into fitness, with agility and acceleration-related workouts making a big part of his program due to the relevance they have in football. On top of that, he also has a more traditional strength based program for the gym, which he does to maintain an overall fitness level of his body.

Disclaimer: The information found on NewsBTC is for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.