Open Interest refers to the total amount of pending derivative contracts that have not yet been settled. In a futures contract, for every seller, a buyer is required to settle the contract.
Bitcoin May Be Headed Towards 20%+ Decline Based On This Pattern
Bitcoin could see a decline of at least 20% in the near future, if the historical pattern of this indicator is anything to go by.
Aggregated Open Interest Of Assets Except Bitcoin Is Forming A Bearish Pattern
In a new post on X, CryptoQuant Netherlands community manager Maartunn has talked about a bearish pattern forming in the aggregated open interest of all cryptocurrencies except Bitcoin.
The “open interest” here refers to an indicator that measures the total amount of derivative positions (in USD) that are open on all exchanges around the world right now.
When the value of this metric is high for any cryptocurrency, it means that the asset has a high number of positions on the derivative market currently. Generally, this kind of trend makes it more probable for the price to show volatile moves.
On the other hand, low values imply the derivative side of the coin in question is cool at the moment, which may suggest a relative period of calmness for the price.
In the context of the current discussion, the aggregated open interest of all cryptocurrencies excluding Bitcoin is of interest. The below chart shows the trend in this indicator over the past couple of years:
In the graph, Maartunn has highlighted an interesting pattern that the aggregated open interest of the altcoins and the Bitcoin price has followed in the last two years.
It would appear that whenever the indicator’s value has crossed the $12.2 billion mark, the BTC price has observed a top formation and has subsequently registered a decline. According to the analyst, this drawdown that has followed the pattern has always been at least 20%.
Just this year, the tops of the cryptocurrency’s price observed in February, April, and July all occurred during periods where the metric was above the $12.2 billion level.
From the chart, it’s visible that the aggregated open interest of the sector excluding BTC once again crossed above this line of historical significance back when the asset’s rally toward the current levels first happened.
Since then, the metric has only continued to climb higher and has now hit the $13.8 billion mark, meaning that the derivative market has become quite overheated now.
If the pattern that Bitcoin has displayed in the past is anything to refer to, then the asset may be fast approaching the top right now, given the overheated altcoin open interest.
As another analyst has pointed out on X, the dominance of the futures open interest made up for by assets other than Bitcoin and Ethereum has also hit 2023 highs.
This once again puts into perspective the overheated status of the market, which could end dangerously for Bitcoin as well as the rest of the cryptocurrency sector.
BTC Price
Bitcoin had made another go at $35,000 in the last two days, but the asset has now once again slipped below the level as it’s now trading around $34,700.
Bitcoin Dominates Derivatives Market To End May On A High Note
Bitcoin’s dominance of the crypto market has been on the rise. This naturally comes with every downtrend in the market because although bitcoin takes a hit, the altcoins always record the worse losses, leaving them with less dominance of the market. Bitcoin’s dominance has however not stopped here. It has now spilled onto the derivatives market where the dominance of the pioneer cryptocurrency is even more apparent.
Bitcoin Open Interest Surges
The general open interest in the crypto market has been on a decline since the market took a hit in December. This is currently sitting at about $25 billion for the total market, down almost 50% from its peak in November at around $48 billion. This mirrors what has taken place in the crypto market over the same time period. However, when it comes to open interest, bitcoin has not fared as badly as the others.
Related Reading | Bitcoin Exchange Outflows Suggest That Investors Are Starting To Accumulate
The digital asset now accounts for the majority of the global open interest in the crypto market. Bitcoin alone makes up 63% of all open interest in the market, meaning that the cryptocurrency commands more than $15 billion in open interest.
It is a step up from the month of April when Bitcoin’s open interest dominance had declined to 50%. With the recent increase in dominance, indicators point to a decrease in speculative interest when it comes to altcoins given their recent decline.
BTC dominates global open interest | Source: Arcane Research
This follows the general trend of the crypto market where bitcoin’s dominance has also grown, although by a smaller margin. If altcoins continue to perform badly, then BTC dominance may continue to rise over the next few weeks.
BTC Is Still King
Through the month of May, the losses in the crypto market have been apparent but some have provided more cover than others. Comparing the losses incurred by all the indexes for the month of May, bitcoin has proven to be the most effective investment.
All of the indexes had recorded double-digit growth for the red month. However, bitcoin had only seen 18% losses while all the other indexes saw losses above 20%. The Small Cap Index as always took the largest hit in the market with 33% losses. As for the Mid and Large Cap Indexes, the losses came out to 28% and 24% respectively.
BTC recovers above $31,000 | Source: BTCUSD on TradingView.com
The decline in the altcoins has triggered a rise in the bitcoin dominance. BTC’s dominance had been resting at 42.5% at the beginning of May and by the end of the month had risen and peaked as high as 46%, the highest it had been in six months.
Related Reading | Billionaire Tim Draper On What Will Trigger The Next Bitcoin Bull Market
As the market ushers in a new month, it is unclear whether this dominance will continue. Given that the market has begun to recover, the altcoins may quickly reclaim what dominance they had lost to bitcoin in the last month.
Featured image from Yahoo! Sports, charts from Arcane Research and TradingView.com
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