- There has been a surge in the open interest in Bitcoin derivatives as traders positioned themselves to profit from the dip in the BTC price which has slid down below $37,000.
- Analysts say that the open interest is now in the danger zone, and with most of the market high on leverage, we are in danger of even more volatility in the near term.
Bitcoin has lost its upward momentum after six weeks of stellar performance. At press time, it trades at $36,787 after losing 1.4 percent in the past day. According to one analyst, we are headed for more turbulent times ahead as the open interest in BTC derivatives rises.
The gains made in late October and the first half of November pushed Bitcoin to its highest price in over a year just north of $38,000. However, it was bound to cool off at some point as other factors came into play. One of these is the flow of stablecoins into exchanges which shot up as Bitcoin went on a bull run a few weeks back. It has now slowed down and the BTC price has dipped, data from Santiment shows.
Another important factor that determines how Bitcoin will continue to trade is BTC derivatives open interest, says one analyst. Known on social media as Credible Crypto, he observed that the open interest in the market showed that a big chunk of BTC traders were expecting the dip, as he pointed out that we’re now in a “danger zone.”
We ended up going for the BTC liq under 37.5k. However, we also saw a significant rise in OI as well- which means a lot of levered players just positioned themselves on this drop rather than it serving to wash them out—which is not ideal. OI is right back to the “danger zone”.
More Bitcoin Volatility Expected
According to the analyst, who has gained a huge following in the stock trading circles as well, the rise in open interest points to a more volatile market. This volatility could, however, be in either direction, he points out.
“We will either see 1. a major short squeeze right back up or 2. a continued flush back down. Neither scenario is off the table atm (or necessarily more likely),” he told his ardent followers.
The analyst advises that rather than trying to predict where the volatility will land us, the BTC community is best served by “sitting on your hands and waiting for the volatility to play out and THEN take action.”
If we get the short squeeze back above our local lows (37.6k) then you know that its safe to enter a position on the reclaim. If we instead get a long squeeze and the price keeps bleeding, then you may get a chance to buy lower.
But while the price momentum is losing steam, the average BTC mining difficulty has been shooting up, indicating a spike in mining activities. Higher mining difficulty, coupled with the upcoming halving, could lead to a constrained number of new tokens entering the market, With the supply in a squeeze, the price will always shoot.
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