On-chain data shows a sharp rise in Bitcoin open interest, suggesting a long-term squeeze may be brewing in the crypto futures market.
Bitcoin open interest has recently risen while funding rates remain positive
As one analyst in CryptoQuant pointed out postalthe futures market may be heading for a bull squeeze in the near future.
This”Open Interest” is a measure of the total amount of bitcoin futures positions currently open on derivatives exchanges. It includes both long and short positions.
An increase in the value of this indicator indicates that users are now opening more positions. This trend could lead to greater volatility in cryptocurrency prices.
On the other hand, a drop in open interest could mean that positions on exchanges are closing. Rapid price movements can lead to mass liquidations that can drastically reduce the value of the indicator.
Related reading | Bitcoin Bearish Signal: Whale Ratio Continues to Hold High
These liquidations stack up to amplify the price action. This event is called a long or short liquidation “squeeze” (depending on the direction of the price change).
Now, this chart shows how Bitcoin funding rates have trended over the past few weeks:
Looks like the value of the metric has moved up recently | Source: CryptoQuant
As you can see in the chart above, Bitcoin open interest has increased significantly over the past few days.
The chart also includes data for another metric,”Funding rate. ” This metric measures the periodic fees that futures traders must pay each other.
A positive value indicates that there are more long traders in the market right now as they pay a premium to hold their positions.
Conversely, a negative value means that bearish sentiment is currently dominant. Looking at the chart, the current funding rate for Bitcoin appears to be positive.
This means that most of the recent increase in open interest must be due to the opening of new long positions.
Related reading | Bitcoin dominance remains high as market sell-off resolves
Historically, very high open interest has often resulted in a liquidation squeeze. With the bulls now predominant, a bull squeeze is likely if there is a sharp decline in the price.
As of this writing, price of bitcoin Floating around $30,500, up 1% over the past seven days. The cryptocurrency has lost 21% in value over the past month.
The chart below shows the trend of the coin’s price over the past five days.
The value of Bitcoin seems to have surged past the $30k mark | Source: BTCUSD on TradingView
Featured image from Unsplash.com, charts from TradingView.com, CryptoQuant.com