The number of open interest contracts in futures can be seen as an indicator of market liquidity. However, since the beginning of 2024, the open interest positions in Bitcoin have shown a consistent trend alongside the price movements. Can we uncover clues through on-chain data?
**Content Overview**
This year, Bitcoin’s open interest positions are highly correlated with price movements. In the medium term, however, the trends are diverging. How do we view the relationship between open interest contract numbers and market sentiment?
On-chain data reveals significant fluctuations in cash margin Bitcoin futures open interest (OI) over the past few months. From the charts, it is evident that the trend of Bitcoin futures open interest is highly correlated with spot prices. At the beginning of January 2024, the OI for cash margin futures across all exchanges started at approximately 280,000 BTC, steadily increasing to a peak of around 340,000 BTC by mid-March. Following this peak, Bitcoin experienced a notable decline, bottoming out near 280,000 BTC in early May. This relates to the volatility of Bitcoin’s spot price, as it reflects the fluctuations in the futures market. After the halving in April, open interest rose again, maintaining levels above 300,000 BTC, indicating that market participants have rekindled their interest in trading, preparing for the upcoming market activities.
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When we zoom out to observe medium-term data, we can see a more pronounced upward trend in Bitcoin’s cash margin open interest from January 2021 to 2023, peaking at 380,000 BTC at the end of 2022. This period encompasses the last bull market and the subsequent bear market, yet the overall trend in open interest remains upward. Notably, from the end of 2023 to the beginning of 2024, open interest significantly increased, reaching above 350,000 BTC. This suggests that, in medium-term data, the volume of open interest is diverging from Bitcoin’s price trajectory. Halving events are generally considered to have a substantial impact on Bitcoin prices, leading market participants to increase their positions, reflecting expectations of potential price increases.
Changes in open interest can also be viewed as an indicator of market sentiment. During price fluctuations, an increase in open interest typically indicates that more market participants are engaging in trading, potentially signifying a strengthening bullish sentiment. Conversely, a decrease in open interest may indicate a wait-and-see attitude among market participants or an increase in uncertainty regarding future price trends.
OI
Bitcoin
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