Elevated Bitcoin Open Interest Levels Puts Market In Vulnerable Position

Bitcoin has recovered over $23,000 multiple times now, but the digital asset is still in a precarious position. This is because the recovery alone was not able to ensure the continuation of the uptrend. Instead, the short selling and buying pressures that investors have been experiencing lately have been easing. Bitcoin open interest also reflects this fact and shows how easy it is for Bitcoin to lose its position.

Bitcoin open interest remains high

Over the past week, open interest on Bitcoin has been on the rise. Having crossed 300,000 in the previous week, there was no stopping this part of the market. However, he also pointed out more characteristics of the current Bitcoin bullish trend.

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First, the high open interest denominated in bitcoin shows that there is very high leverage in the cryptocurrency market. As with any market, having such a high leverage always puts the value of a digital asset in a precarious position. It can swing either way resulting in a short squeeze or a long squeeze. Whatever the case, the results are often the same; There are huge price swings that would go either way.

Bitcoin price chart from TradingView.com

BTC recovers above $23,000 | Source: BTCUSD on TradingView.com

With the current movement of bitcoin, a prolonged squeeze is likely to be the end of it. This is likely to cause the price to drop again and touch $20,000. But if the exit opportunity ends with a short squeeze, Bitcoin price could revisit $25,000.

Financing rates are going down

Last week, the market saw some much-needed bullish sentiment on the part of long-term traders when funding rates recovered to neutral levels. Given that funding rates have spent weeks swinging without being neutral, this was a welcome change, but for a while.

It looks like the positive recovery will only last one week as bitcoin finance prices start to return to negative. It shows a direct bearish decline from neutral, which indicates that traders were returning to more cautious trades.

Bitcoin financing rates

Funding rates fall below neutral | Source: Arcane Research

Interestingly, though, despite lower funding rates, they still maintained higher lows. It shows better prospects compared to June, which was marked by funding rates that have always been below neutral.

Related reading | Bullish sentiment extends to institutional investors as Ethereum balloons flow

What this shows is that while bitcoin traders have been more careful, they haven’t written off the digital asset completely. This improvement in market sentiment was demonstrated by the recent recovery of Bitcoin. However, for this to continue, funding rates will need to be reversed from here.

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

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