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January 20, 2022
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Bitcoin Open Interest Reaches Dangerously High Values, Leverage Flush Coming?

On-chain knowledge reveals Bitcoin open curiosity has reached dangerously excessive values, an indication {that a} leverage flush could also be coming quickly.

Bitcoin Open Interest Rises To High Values

As identified by an analyst in a CryptoQuant post, the BTC open curiosity has now reached values the place mass liquidations have taken place previously.

The “open interest” is an indicator that measures the entire quantity of BTC futures positions at present open on derivatives exchanges. The metric accounts for each lengthy and brief positions.

When the worth of the metric is low, it means traders aren’t utilizing a lot leverage proper now. Such values often end in low volatility within the price of Bitcoin.

On the opposite hand, excessive values of the indicator counsel that futures contract customers are at present utilizing a excessive quantity of leverage. This state of affairs can result in excessive volatility within the market as large price swings can lead to a liquidation squeeze.

Related Reading | Exchange Whale Ratio Suggests Bitcoin Dump Incoming

Now, here’s a chart that reveals the pattern within the BTC open curiosity over the previous yr:

Bitcoin Open Interest

The indicator's worth appears to be on the rise lately | Source: CryptoQuant

As you’ll be able to see within the above graph, worth of the Bitcoin open curiosity appears to be like to be climbing up in the previous few weeks.

The quant has marked within the chart the earlier instances the indicator confirmed equally excessive values. It’s clear that sooner or later after reaching these values, the metric has had a pointy decline.

The sudden lower within the open curiosity implies {that a} leverage flush occurred at these instances. Such a squeeze occurs when liquidations cascade collectively in response to a swing within the price of Bitcoin.

During such leverage flush incidents within the interval of the chart, the price of the crypto additionally appears to have crashed alongside it. This implies that these earlier liquidations largely concerned lengthy positions.

Related Reading | Why Did China Ban Bitcoin Mining? Here Are The Seven Leading Theories

Since the market appears to be overleveraged proper now as hinted by the open curiosity values, it’s attainable the same liquidation occasion might happen within the close to future.

BTC Price

At the time of writing, Bitcoin’s price floats round $46.7k, down 5% within the final seven days. Over the previous month, the coin has misplaced 12% in worth.

The beneath chart reveals the pattern within the price of BTC over the past 5 days.

Bitcoin Price Chart

BTC's price appears to have struggled in the previous few days | Source: BTCUSD on TradingView

In the previous week, Bitcoin appears to have once more began consolidating within the $45k to $50k vary. It’s unclear in the intervening time when the coin could escape this sideways motion, but when the open curiosity is something to go by, a liquidation occasion could occur quickly.

Featured picture from Unsplash.com, charts from TradingView.com, CryptoQuant.com

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