Bitcoin’s open interest (OI) has seen a remarkable surge, crossing the $2 billion mark in just three days, causing traders to anticipate a potential sudden “whipsaw” effect on its price.
A pseudonymous crypto trader, Daan Crypto Trades, highlighted the significant rise in Bitcoin’s OI over the past 72 hours in a post on June 5. Open Interest refers to the total number of outstanding derivative contracts, like options or futures, that have not been settled – an increase in OI could indicate a growing number of traders speculating on the digital asset.
Kelly Kellam, the director of BitLab Academy, pointed out that the sudden spike in Bitcoin’s OI, combined with positive funding rates, suggests a likelihood of whipsaw action in the price of Bitcoin (BTC) – a phenomenon where there is a sudden price surge in the opposite direction of the prevailing trend.
As Kellam elaborated, “The open interest rising alongside the positive premium continuing (indicating everyone going Leveraged Long) sets the stage for a minor correction as a health check for BTC.”
According to data from CoinGlass, Bitcoin’s OI surged by $2.02 billion, bringing it to $36.92 billion on June 6. This significant increase in OI over a short period has the potential to intensify price fluctuations, especially when traders hold multiple positions and decide to swiftly adjust their trading strategy.
Furthermore, it can also impact the general sentiment of traders who interpret OI as a signal to determine whether to hold onto or sell their cryptocurrency assets.
At the time of writing, Bitcoin is trading at $70,890, reflecting a 4.23% increase over the past week, according to CoinMarketCap data. In the last 30 days, Bitcoin has seen a rise of 10.42%.
While the market sentiment overall appears positive, pseudonymous crypto trader Jelle warns that a sharp 4% decline in Bitcoin’s price to $68,000 could potentially wipe out approximately $1.96 billion in long positions. This possibility should not be disregarded, despite the prevailing optimism in the market.
Looking ahead, Jelle expressed confidence that Bitcoin will soon enter a phase of price discovery, but not without some significant volatility in the process.
Disclaimer: This article does not offer investment advice or recommendations. All investment and trading decisions involve risks, and readers are advised to conduct their own research before making any financial decisions.