On-chain data shows that Bitcoin open interest and estimated leverage metrics have continued to rise recently. This could mean a short-term squeeze could be coming.
Bitcoin open interest rises despite price drop
As one analyst in CryptoQuant pointed out postal, BTC’s open interest has trended upward over the past month despite the cryptocurrency’s price drop.
This”Open Interest” is a measure of the total amount of Bitcoin futures contracts currently open in the market.
When the value of the indicator rises, it means more investors open long or short contracts on derivatives exchanges. This could mean that leverage is on the rise in the market, so this trend could lead to more volatility in cryptocurrency prices.
On the other hand, a decline in this indicator indicates that holders have started to close their positions. When Bitcoin prices fluctuate wildly, the indicator plummets, forcing a massive liquidation of contracts.
This layer of liquidation superimposes and amplifies price action. This event is called a long or short squeeze, depending on which contracts have the majority.
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Now, this chart shows the trend of Bitcoin open interest over the past year:
The indicator's value seems to be trending up | Source: CryptoQuant
As you can see in the chart above, Bitcoin’s open interest has been rising despite the price drop. This is a departure from the trend near the $69,000 top, where open interest follows the price as bulls are in the majority.
Related reading | Why Bitcoin will thwart bulls and bears in 2022
A higher percentage of futures contracts appear to be short holders this time around, as the indicator has been moving against price.
BTC’s estimated leverage continues to hit new highs
Another indicator,”estimated leverage,” measures the average amount of leverage used by each futures holder.
The indicator’s recent record highs suggest that bears are now taking on a lot of leverage risk. The chart below shows this trend.
Leverage in the market moves up | Source: CryptoQuant
Historically, such a large amount of leverage has led to a straight flush sooner or later. As the derivatives market is dominated by short holders this time around, a short squeeze event is likely.
As of this writing, price of bitcoin Floating around $41,600, it’s down 12% over the past week. The chart below shows the trend of BTC price over the past five days.
BTC's price has moved sideways in the last few days | Source: BTCUSD on TradingView
Featured image from Unsplash.com, charts from TradingView.com, CryptoQuant.com