Solana Open Interest Archives

Solana Open Interest Has Plunged After Market Volatility

According to data from the analytics firm Santiment, the Open Interest of Solana and other cryptocurrencies has seen a steep decline since Bitcoin has set its new all-time high.

The “Open Interest” here refers to the total amount of derivative contracts (like futures and options) of a given cryptocurrency that are currently open on all exchanges. The metric makes this measurement in terms of the US Dollar (USD).

When the value of this metric goes up, it means that traders are opening up fresh derivative positions right now. Since such a trend usually results in the total leverage in the market rising, the asset may be more likely to witness volatility following it.

On the other hand, a decrease in the indicator implies either the holders are closing up their positions of their own volition or are getting liquidated by their platform. This kind of trend may lead towards more stable price action for the coin, assuming that leverage goes down alongside this decrease.

Now, here is a chart that shows the trend in the Open Interest for Solana, as well as for Bitcoin and Ethereum, over the past month:

As displayed in the above graph, all three of these cryptocurrencies have registered a notable drop in the metric as a consequence of the sharp price action the market has witnessed in the past day.

To be more particular, Bitcoin has seen its Open Interest drop by around $1.42 billion (corresponding to a change of -12%), Ethereum $967 million (-15%), and Solana $424 million (-20%).

Thus, it would appear that SOL saw the sharpest drawdown in the indicator as compared to the top two coins in the sector. In this Open Interest flush, investors of a variety would have been liquidated, like those who would have longed as SOL pushed up or those who opened shorts after its price crashed.

“In a way, we can view this open interest plummet as a sign that ‘speculative excess’ has been temporarily removed from the markets,” explains the analytics firm.

“Assuming funding rates can even out, prices can theoretically fluctuate under less influence of futures and options positions, and more on a true supply and demand market valuation from traders, investors, and hodlers,” notes Santiment.

Data shows Solana and Chainlink are among the top cryptocurrencies that have observed growth in Open Interest to relatively high levels.

Solana & Chainlink Have Their Open Interest At Notable Values Currently

According to data from the on-chain analytics firm Santiment, there has been a dramatic increase in interest in the derivative market for cryptocurrencies recently.

The indicator of relevance here is the “Open Interest,” which keeps track of the total amount of derivative contracts for any given asset that is currently open on all centralized exchanges.

When the value of this metric goes up, it means that the investors are increasing positions on the derivative side of the market. Such a trend may be a predictor for higher volatility, as the total leverage in the sector tends to go up when new futures positions pop up.

On the other hand, a decrease in the indicator implies the holders are closing up their positions or are getting forcefully liquidated by their platform, thus leading to the leverage potentially coming down. As such, this kind of trend can result in the asset’s price becoming more stable.

Now, here is a chart that shows the trend in the Open Interest for various top assets in the cryptocurrency sector over the past year:

Solana & Chainlink Open Interest

As displayed in the above graph, the Open Interest has exploded for Bitcoin and Ethereum recently as the latest surge in prices has occurred. Generally, such sharp price action attracts a large amount of speculators to the assets, so the indicator’s upward trajectory isn’t surprising.

The scale of the increase, though, may be a bit concerning. From the chart, it’s visible that the BTC Open Interest is currently around $9.85 billion, while for ETH, it’s about $5.59 billion.

Among the altcoins, Solana and Chainlink have particularly stood out, as the indicator has touched $1.62 billion and $549 million for them, respectively. These are much smaller values than Bitcoin and Ethereum, of course, but their market caps are also much smaller than these two titans.

“With Bitcoin, in particular, crossing over $10B in open interest for the first time since July, 2022, this does signal crowd euphoria is alive and well,” notes the analytics firm. “Sometimes rising too quickly can be indicative of some caution flags.”

The reason that a high Open Interest has historically been a cause for concern is that mass liquidation events become more probable to occur in such market conditions, due to an abundance of leverage.

Such events, where liquidations can cascade together, are usually chaotic and result in some sharp price action. As Solana, Chainlink, and other top assets have a potentially overheated Open Interest right now, they may be ones to watch in the coming days, as any further increases might serve as a warning.