Bitcoin (BTC) has seen a surge in open interest across crypto derivatives exchanges, reaching a five-month high of $10 billion. This comes after leverage subsided in the wake of FTX’s collapse in November, according to data from Coinalyze. Open interest is a metric that assesses the value of all unsettled derivatives positions. A rise in open interest, alongside an increase in price, is often used to confirm the legitimacy of a move. At the time of writing, bitcoin was trading at around $30,000 after it surged to a 10-month high of $30,540 on Tuesday.
Zahreddine Touag, head of trading at Woorton, a crypto trading firm and liquidity provider, said that bitcoin broke out in a “global risk-on environment,” with the Nasdaq also rising by 10% in the last 30 days. “We think this move is driven by technicals, BTC broke a major resistance at $28.5k and rebounded on its 2023 bullish trendline,” Touag said. “We noticed futures open interest has been moving up vertically which shows more participation from crypto traders and a bullish market sentiment,” he added. “For now, we do not see signs of extreme exuberance; indeed, the fear and greed index is at 61, funding rates are still negative on many exchanges for BTC while short-sellers did not capitulate yet. We will monitor these metrics to predict a potential trend reversal.”
It’s important to note that an increase in open interest means that whilst short-sellers have added to their shorts in this region, traders betting on long trades are doing so with leverage that may unwind if price begins to reverse. A total of $98 million in crypto derivatives positions have been liquidated in the past 24 hours as bitcoin momentarily slipped below $30,000, according to CoinGlass.
Bitcoin’s recent surge in price has been driven by various factors, including the weakening of the US dollar, institutional adoption, and growing interest from retail investors. The cryptocurrency’s limited supply and the halving event that occurred in May 2020 have also contributed to its rise in value. However, bitcoin’s high volatility and lack of regulation continue to make it a risky investment.
Despite its risks, bitcoin has gained mainstream acceptance in recent years, with major companies such as PayPal and Tesla accepting it as a form of payment. This has increased its legitimacy and further fueled its adoption by investors. However, regulatory scrutiny remains a concern for the cryptocurrency industry, as governments around the world seek to regulate the sector.
In conclusion, bitcoin’s surge in open interest across crypto derivatives exchanges to a five-month high of $10 billion is a positive sign for the cryptocurrency’s legitimacy. However, investors should exercise caution when investing in bitcoin due to its high volatility and lack of regulation. As always, it’s important to do your own research and seek professional advice before making any investment decisions.