Bitcoin, Ethereum Open Interest Suggests A Squeeze Is Coming


The two largest cryptocurrencies by market capitalization, Bitcoin and Ethereum, have seen a huge rise in their open interest in the past two weeks. This comes even when the market sees a price falter and investors start to take a more conservative stance in the market. The massive increase in open interest across these two cryptocurrencies could have some significant implications for the cryptocurrency market as a whole.

Ethereum Rise With Bitcoin

Open interest in Bitcoin has been on the rise for the past two weeks, which is what happened It led to some interesting predictions for the digital originAnd now, Ethereum is starting to follow the same trend. Over the past week, open interest on Ethereum has risen relative to market cap along with that of Bitcoin.

Indeed, both digital assets hit all-time highs in this regard, surpassing June 2022 levels. Bitcoin surged to 3.21% while Ethereum peaked at around 4.24% over the same time period. So ETH is seeing more extreme numbers compared to Bitcoin.

To put this in perspective, the open interest to market capitalization ratio of ETH compared to BTC since 2019 has always been around 0.46%, which is a fairly small margin. However, this has changed in the past two years and the gap is constantly widening.

Bitcoin, Ethereum open interest

BTC and ETH open interest reach new ATH | Source: Arcane Research

The Ethereum consolidation was the main reason behind this rally. Since interest in the second largest cryptocurrency peaked as the upgrade approached, institutional investors started setting up shop in Ethereum, leading to the wide gap that is now being observed.

Incoming short squeeze?

The rise in open interest, especially those reaching all-time highs, has always had massive effects on the cryptocurrency market, even if only in the short term. Current levels indicate that the derivatives in both digital assets are currently very high, resulting in high levels of leverage.

Bitcoin price chart from TradingView.com

BTC price settles above $19,000 | Source: BTCUSD on TradingView.com

With these high levels, it is important to keep in mind that while a short squeeze is more likely, it can go either way. Eventually, the leverage levels will begin to decline, which is when the stresses are expected. Whatever way they swing in the end, the repercussions will be equally brutal on the market.

High market volatility and instability will be the daily system when this happens. For investors, this is the time to take less risk to avoid falling into this meltdown. Steady bear trends and these extreme levels of leverage can be a recipe for disaster.

Featured image from CoinDesk, charts from Arcane Research and TradingView.com

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