An increase in open interest and leverage could lead to a correction in the Bitcoin market

As Bitcoin price approaches all-time highs, derivatives indicators are showing ominous signs that could lead to a major correction. According to on-chain analytics provider Glassnode, the open interest (OI) of options exploded in October.

OI is the total number of derivative contracts outstanding. The higher this indicator, the more market participants keep a close eye on things and wait for a trend reversal.

Bitcoin Open Interest doubles in a month

Open interest is currently up 107% ($ 6.3 billion) from its September lows as more money flows into Bitcoin derivatives.

Open interest in BTC options | The source: Glass knot

Bitcoin options volume has also increased, according to Glassnode, hitting a high of $ 1.5 billion a day last week. So far, the options trading volume has reached this high three times between March and May of this year.

Additionally, BTC bulls prefer an exercise price of over $ 100,000, which “gives insight into the overall positive market sentiment”.

Warning signs: lever too high

Derivatives exchanges also offer traders high leverage positions. This could be a red flag for the market. When contracts are liquidated, they can create a domino effect, increasing selling pressure and leading to a market crash.

This has already been observed several times during the current market cycle, with over-indebted positions being eliminated immediately. Computer scientist and partner at Cinneamhain Ventures, Adam Cochran has comment for leverage in current markets:

“I don’t like how stupid leverage looks in open contracts. Bitcoin Open Interest rises around the big crash. A lot of leverage in the system at the moment. “

Source: Adam Cochran

At the end of February, Bitcoin fell 22% in just a few days as over-indebted positions were eliminated. A similar crash occurred in mid-April, when BTC fell 24% in a matter of days and repeated itself with a 15% decline in early September. Signals that the same thing could happen again.

A leverage-induced drop in prices from current levels could push BTC below $ 50,000 in the next few days. Analysts advise caution as leveraged liquidation is a natural part of market action. In this case, the price rarely rises parabolically and stays there for a long time.

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Minh Anh

According to Beincrypto

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