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BITCOIN | As Bitcoin Open Interest Breaks ATH, Analyst Warns That “The Crypto Market is Getting Away with Itself”

On March 4, 2024, open interest in Bitcoin reached $31 billion, breaking the previous high of $24.3 billion established on April 14, 2021.

Analysts are urging caution due to the increase in open interest, drawing comparisons to the bull market of 2021. Prior to a 23% decrease to $49,078 on April 26, 2021, Bitcoin’s price was trading close to current levels at $63,524 during the last open interest record.

Yield App’s Chief Investment Officer, Lucas Kiely, claims that growing open interest rates, sharp price swings, and high funding rates frequently serve as warning signs for traders, especially those who use leverage.

As to Kiely’s recent piece, “Leverage is skewed toward the bullish side, as the funding rates in Bitcoin perpetual futures listed on Binance surpassed 100% for the first time in at least a year last week.”

The entire number of active Bitcoin futures or options contracts in the market is referred to as the cryptocurrency’s open interest. It is a gauge of the total sum of money that is ever invested in Bitcoin derivatives.

Without needing to hold the underlying commodity, traders can speculate on changes in the price of Bitcoin through contracts for futures and options. The open interest rises when traders engage in Bitcoin futures or options contracts. The open interest falls as contracts are closed out or come to an end.

The open interest in Bitcoin might reveal how market participants feel about the cryptocurrency. Growing open interest, for instance, can be a sign of growing positive attitude among traders, whilst declining open interest could be a sign of growing pessimistic sentiment.

According to BitKE in 2022, open interest in ETH futures was approximately $12 billion as of March 4 2024, moving toward the $13 billion peak observed on November 9 2021, the day ETH opened at an all-time high of $4,810. ETH dropped to $3,996 by November 19, 2021, 17% below its peak.

Kiely notes that new all-time highs for Bitcoin and Ethereum are still all but certain this cycle and that the growing open interest and funding rates don’t alter the fundamentals around these currencies.

They are only an indication that the cryptocurrency industry is doing well on its own. Such frenzied trading isn’t limited to experienced traders or crypto enthusiasts; it also suggests a surge in FOMO, which is a house of cards that is susceptible to short-term collapse.

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