According to the latest data from Cryptoquant, open interest reached 9.902 billion last Wednesday, seemingly in line with the recent surge in the price of bitcoin (BTC). This was the first time such a figure had been reached since August last year.
So what is Bitcoin OI?
For the uninitiated, open interest is the number of contracts held by all investors on a futures exchange that have not yet been closed after a buy (long) or sell (short) position has been taken. The higher this figure is, the more money there is in the market and the more interest there is in the market.
Therefore, an increase in open interest means that the number of futures contracts held without being entered or exited is gradually increasing, suggesting that the current price trend is likely to continue. Conversely, a fall in this figure indicates that investors are liquidating their current holdings, suggesting that the current price trend may be coming to an end and increasing the likelihood of a price reversal.
On the other hand, a sharp decline in this value, accompanied by sharp price movements, indicates that there is a squeeze on long or short positions, which means that the price may become more volatile.
Bitcoin futures open interest (OI) on the Chicago Mercantile Exchange (CME) in the U.S. topped $3.54 billion, according to Coindesk data. This is second only to Binance’s $3.83 billion. “CME’s growing market share is a sign that institutions are driving BTC’s price appreciation,” CoinDesk analysed.
What does Open Interest Mean?
When you place an order in the futures market, you don’t own the bit, you borrow it and sell it. Since it is leveraged, borrow and hit. It means you have borrowed a loan, but when you borrow someone else’s funds there is some interest, and you place an order with a larger quantity along with the borrowed principal, and there is a bet that it will go up or down, but the futures market itself has a price difference from the spot market.
Open interest is like a volatile contract like the one above. It’s like signing a contract that says it’s going to go up, it’s going to go down, and you’re borrowing other people’s volume to do it. The state of being open is when you write a contract with the borrowed exchange and make a trade based on the borrowed amount with some interest.
Open interest is number of positions. The position size is huge, i.e. the number of people who have placed orders in the futures market is the highest ever. in the futures market.
Why, So Sensitive?
Why is the number of positions in the futures market so sensitive? When you close your position, you have two options: take profit or stop loss, and then there is the concept of liquidation, which is a characteristic of the futures market, where the staked contracts are closed.
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