The opening of the trading week saw bitcoin bounce again and touched a high of $32,000, albeit briefly. The correction took the market by surprise as the indicators were pointing to a more bearish trend. Nevertheless, the recovery was a welcome sight as it put bitcoin on track to end its red streak. While the reason behind this rally is shrouded in mystery, the open interest may hold the answer.
Was it a small squeeze?
The last weekend saw a jump in global open interest and has been even more prominent in bitcoin open interest. The surge sent the price of the digital asset to a new high of 307,189 BTC just before its incredible correction took place. However, this will only last for a long time considering that the open interest of BTC denominations will see a massive drop of 18,000 BTC in the next two hours, but the effect has already been recorded.
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Bitcoin price climbed above $31,000 when open interest recorded this new all-time high, indicating that it was a minor squeeze. BTC denominated open interest was 288,875 BTC hours later while BTC continued its uptrend. The two-hour period where this sharp drop in open interest was observed was particularly visible on the Bybit exchange, which recorded a 12% drop in this time period.
Surge in BTC open interest right before price breaks $31,000 | Source: Arcane Research
Thereafter, leverage has remained very high, and open interest has since recovered from its decline. Its recovery was not enough to push it back to new all-time highs, but it did rise above the previous all-time high of 289,780 BTC recorded two weeks ago.
bitcoin short/long ration fall
With the crash of the crypto market has come some particularly interesting implications. One of them is the decline in the long/short ratio of bitcoin, which has now brought it back to the level it recorded in the first few months of 2022.
BTC struggles to hold on to $30,000 | Source: BTCUSD on TradingView.com
The long/short ratio is basically the ratio of the net long and short accounts in the contract to the total number of accounts with open positions. The decline in this ratio has been most prominent in one of the most widely used derivative instruments in the crypto market which is the stablecoin Perpetual BTC.
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A drop in this long/short ratio paints a very bearish picture as it is now slightly above 1. This, in historical proportions, is quite low, and given that a low long/short ratio is known to precede a large market. Crash could lead to further downside for the market. One example is the fall from an all-time high for bitcoin in late March, when the long/short ratio hit its all-time low just before the market peak.
Featured image from NewsBTC, charts from Arcane Research and TradingView.com
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