Recent Drop in Open Interest
Bitcoin’s Open Interest, a measure of derivative contracts, has recently seen a significant decline. This means that investors are closing or liquidating their positions.
Overheating and Volatility
Historically, high Open Interest levels have indicated an overheated market, leading to increased volatility. The recent surge in Open Interest coincided with Bitcoin’s price rally.
Cool-Off and Price Rebound
After reaching an all-time high, Open Interest has cooled off alongside a drop in Bitcoin’s price. This decrease in leverage has stabilized the market.
Indicator for Price Action
When Open Interest is overheated, it can signal potential volatility. However, recent trends have shown that Open Interest has only cooled off with a decline in price.
Latest Drawdown and Rebound
The recent price drawdown saw Open Interest drop to its lowest levels since March. This cooldown has been followed by a rebound in Bitcoin’s price.
Conclusion
If Open Interest remains at lower levels, it could be a positive sign for the sustainability of the current rally. Bitcoin’s price has recovered from its weekend plunge, indicating that the cooling off in Open Interest may be a favorable development for the bulls.
