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Bitcoin open interest plummets, but all hope is not lost



Bitcoin open interest plummets, but all hope is not lost


Open interest in Bitcoin has been trending down recently. This is not surprising considering that the price of the digital asset has also been falling lately. Last week, this downward trend was mainly driven by movements in the cryptocurrency exchange, Binance. Despite this drop, all is not bad for bitcoin in terms of open interest.

Bitcoin open interest falls

Bitcoin open interest had been on a recovery trend since the Dec. 4 crash. This has been mainly the result of various rallies that Bitcoin has made since then. It had even reached an intraday peak of 282,000 BTC in early May, though it would continue to lose a good chunk when open interest dropped by 35,000 BTC and left intraday interest on May 14 at 247,000 BTC.

Related Reading | Crypto Market Madness Leads to Surge in Bitcoin On-Chain Activity

The main factor behind this cannot be pinpointed as there are a number of things that can cause drops like this in open interest. One of them is when traders quickly close their long positions or take profit on their short positions. This is mainly due to the massive sales in the market.

Open interest falls to higher lows | Source: Arcane Research

What this paints is an unstable market. With the rise in liquidations lately and the drop in open interest, this mostly shows negative sentiment from traders as even open interest has struggled to hold a single cap, up or down. .

It is also worth noting that cryptocurrency exchange Binance saw one of the largest drops in open interest in the first two weeks of May. The crypto exchange had seen its open interest hit 115,000 BTC on May 8. However, as of May 14, he had lost around $1.5 billion in open interest, adding up to a total of 28,000 BTC lost. This shows that Binance was the biggest contributor to the 35,000 BTC drop in open interest.

The light at the end of the tunnel

While the decline in bitcoin open interest may seem alarming, it is important to examine where open interest has been over the past year. Despite numerous bullish rallies recorded in 2021, bitcoin open interest has not increased as much as it did in 2022.

BTC Price Drops Below $30,000 | Source: BTCUSD on TradingView.com

Open interest peaked just below 260,000 BTC in the fourth quarter of the year before falling back below 200,000 BTC. 2022 would turn out to be a better year as the year had taken off with a massive recovery. This had caused open interest to rise above 250,000 BTC once again. Then in May, open interest hit a new high of 282,000.

Related Reading | In Numbers: Comparison of Bitcoin’s Most Volatile Day of 2022

So even with the recent downtrend on record, the OI continues to trend down. This puts it at 2021 levels where the market had seen impressive rallies. This indicates that despite some traders withdrawing from the market, the number of those who are still confident in the market remains high even after Thursday’s deleveraging event.

Featured Image from The Statesman, Charts from Arcane Research and TradingView.com

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