Bitcoin Open Interest Nosedives, But All Hope Is Not Lost

Bitcoin open interest has been on a downtrend recently. This is not surprising given that the price of the digital asset had also been declining in recent times. The past week has seen this downtrend mostly driven by movements on the crypto exchange, Binance. Despite this decline, it is still not all bad for bitcoin in terms of open interest.

Bitcoin Open Interest Falls

The bitcoin open interest had been on a recovery trend since the December 4th crash. Mostly this has been the result of various recoveries that bitcoin has made ever since then. It had even hit an intraday peak of 282,000 BTC back at the beginning of May, although it would go on to lose a good portion of this when open interest had declined by 35,000 BTC and left the intraday interest on May 14th at 247,000 BTC.

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The major factor behind this cannot be pinpointed given that there are a number of things that can cause declines such as this in the open interest. One of these is when traders swiftly close their longs or take profits from their short positions. Mainly, this is triggered by massive liquidations across the market.

Open interest declines to higher lows | Source: Arcane Research

What this paints a picture of is an unstable market. With liquidations rising in recent times and open interest plummeting, it shows mostly negative sentiment on the part of traders as even open interest has had a hard time maintaining a simple course either upwards or downwards.

It is also worth noting that crypto exchange Binance saw one of the largest falls in open interest in the first two weeks of May. The crypto exchange had seen its open interest grow to 115,000 BTC on May 8th. However, by May 14th, it had lost about $1.5 billion in open interest, which came out to a total of 28,000 BTC being lost. What this shows is that Binance had contributed the largest to the 35,000 BTC decline in open interest.

Light At The End Of The Tunnel

While the fall in bitcoin’s open interest can seem like a cause for alarm, it is important to examine where the open interest has been for the past year. Even though the numerous bull rallies that were recorded in the year 2021, bitcoin’s open interest did not grow as much as it has in 2022.

BTC price falls below $30,000 | Source: BTCUSD on TradingView.com

Open interest had peaked just below 260,000 BTC in the fourth quarter of the year before declining once more below 200,000 BTC. 2022 would prove to be a better year as the year had taken off with a massive recovery. This had brought open interest back up above 250,000 BTC once more. Then in May, open interest had reached a new high of 282,000. 

Related Reading | By The Numbers: Bitcoin’s Most Volatile Day Of 2022 Compared

So even with the recent downtrend being recorded, the OI continues to trend at a higher low. This puts it at 2021 levels where the market had seen some impressive recoveries. This indicates that even if some traders are pulling out of the market, the number who still have faith 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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