Open interest in Bitcoin surged to $31 billion on March 4 2024 surpassing the previous record of $24.3 billion set on April 14, 2021.
The rise in open interest is drawing calls for caution from analysts who draw parallels to the 2021 bull market. During the previous open interest record, Bitcoin’s price was hovering near current levels, starting at $63,524 before experiencing a 23% decline to $49,078 by April 26, 2021.
According to Lucas Kiely, the Chief Investment Officer for Yield App, the rising open interest rate together with the extreme price movements, and high funding rates, often act as a warning for traders, particularly those using leverage.
“Last week, the funding rates in Bitcoin perpetual futures listed on Binance surpassed 100% for the first time in at least a year, which means that leverage is skewed toward the bullish side,” said Kiely in a recent article.
Bitcoin open interest refers to the total number of outstanding Bitcoin futures or options contracts in the market. It is a measure of the amount of money invested in Bitcoin derivatives at any given time.
🚀🚀🚀#Bitcoin open interest hit a record high of $32.36billion
👉https://t.co/b1RbJ1A35P pic.twitter.com/WYOJ3pLURT
— CoinGlass (@coinglass_com) March 5, 2024
Bitcoin futures and options contracts allow traders to speculate on the price movements of Bitcoin without having to own the underlying asset. When traders enter into Bitcoin futures or options contracts, the open interest increases. As contracts are closed out or expire, the open interest decreases.
The Bitcoin open interest can provide insight into the sentiment of market participants towards the cryptocurrency. For example, a rising open interest may indicate growing bullish sentiment among traders, while a falling open interest may indicate growing bearish sentiment.
Meanwhile, open interest in ETH futures sat around $12 billion as of March 4 2024, edging closer to the $13 billion peak seen on November 9 2021 – the day ETH opened at an all-time high of $4,810, as reported by BitKE in 2022. By November 19 2021, ETH fell to $3,996, 17% below its peak.
Open Interest in #Ether Options Hits All-Time High – Overtakes #BTC Interest for First Time in History
The current open interest in Ether options is at an all-time high of $8.1 billion against BTC options open interest currently at $5.5 billion.https://t.co/0dJm6mNUhi pic.twitter.com/dUqRgCMdBm
— BitKE (@BitcoinKE) August 20, 2022
According to Kiely, the rising open interest and funding rates don’t change the fundamentals around BTC and ETH noting that fresh all-time highs are still all but guaranteed this cycle.
“They’re simply a sign that the crypto market is getting away with itself. Such frantic trading isn’t just down to professional traders or long-term believers in crypto – it also indicates a rise in FOMO, and that’s a house of cards that can easily crumble in the short term.”
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