Bitcoin saw a significant increase in open interest, reaching over $2 billion in just three days, causing traders to anticipate a possible sudden “whipsaw” effect on its price.
Daan Crypto Trades, a pseudonymous crypto trader, highlighted the rise in Bitcoin’s open interest in a June 5 post. Open interest refers to the total number of derivative contracts that have not been settled, indicating increased speculation on the asset by traders.
Kelly Kellam, director of BitLab Academy, noted that the sudden surge in Bitcoin’s open interest, along with positive funding rates, could lead to a whipsaw effect on the price of Bitcoin. This phenomenon occurs when there is a sudden price spike in the opposite direction of the current trend.
The increase in open interest, coupled with persistent positive premium rates, suggests a potential correction in Bitcoin’s price, according to Kellam.
Data from CoinGlass revealed that Bitcoin’s open interest rose by $2.02 billion in a span of three days, reaching $36.92 billion on June 6.
Open interest can impact price swings, especially when traders hold multiple positions and decide to adjust their strategies suddenly. It can also influence trader sentiment, as some use open interest as a signal to determine whether to hold or sell their crypto assets.
As of the time of writing, Bitcoin is trading at $70,890, reflecting a 4.23% increase over the past seven days, according to CoinMarketCap data.
If Bitcoin’s price were to sharply decline by 4% to $68,000, approximately $1.96 billion in long positions could be liquidated, a potential risk that traders should consider despite the overall market sentiment.
While some traders are optimistic about Bitcoin’s future price discovery, they anticipate significant volatility in the market before this occurs.
It is important to note that this article does not provide investment advice or recommendations. All investment and trading decisions involve risks, and readers are encouraged to conduct their own research before making any decisions.