As Bitcoin prices approach their highest prices on record, derivative measures are starting to show worrying signs that could lead to a significant correction. Open interest (OI) options exploded in October, according to on-chain analytics provider Glassnode. Options allow traders to buy Bitcoin contracts with the option of selling them before the allotted date or price, unlike futures contracts which are fixed.
Open interest refers to the total number of outstanding derivative contracts that have not been settled. The higher it is, the more closely market participants watch things and wait for the trend to change.
Bitcoin OI doubles in a month
Open interest is currently up 107% or $ 6.3 billion from the September lows as more money poured into Bitcoin derivatives.
Glassnode added that Bitcoin options volume is also high, peaking at $ 1.5 billion per day last week, stating that the last time options trading volume was this high it was three times. between March and May of this year.
He added that BTC bulls favor strike prices above $ 100,000, “giving a glimpse of an overall positive sentiment in the market.”
Take advantage of warning signs
Derivatives exchanges also offer traders high leverage positions, which can be a red flag for the markets. When contracts are liquidated, they can cause a cascade effect that increases selling pressure and can lead to a stock market crash.
This has already been seen several times in the current market cycle, with over-leveraged positions being eliminated in one fell swoop. IT specialist and partner at Cinneamhain Ventures, Adam Cochran, commented on the amount of leverage in the markets at the moment,
“I don’t care how stupid the leverage is to open tomorrow. OI on Bitcoin is about the same level as we were when we had the big crash. Lots of leverage in the system in this moment.
At the end of February, Bitcoin crashed by 22% in a matter of days due to the elimination of over-leveraged positions. A similar crash happened in mid-April when BTC fell 24% in a matter of days, and it happened again in early September with a 15% erasure. There are signs that the same thing could be about to happen again.
A leverage-induced crash from current prices could take BTC back below $ 50,000 in a matter of days. Analysts recommend caution, as liquidating leverage is a natural part of market action and prices rarely go up parabolically and stay there for a long time.
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