The number of Bitcoin Open Interest (OI) at BitMex, the world’s largest crypto derivatives platform, now exceeds $1 billion, and inching closer to the $1.5 billion mark.
Historically, the one yard, or, $1 billion mark, has been a psychological level and viewed by traders as a hint of upcoming volatility.
At over $1.3 billion at the time of press, Arthur Hayes, the CEO of BitMex, now expects to see “fireworks.”
What is Bitcoin Open Interest?
Open Interest is a metric that shows the number of BTC–related open contracts offered by the platform that is yet to be closed for the underlying asset.
XBTUSD open interest over 1 yard. Time for some fireworks. pic.twitter.com/2CTc9v3AR8
— Arthur Hayes (@CryptoHayes) February 2, 2020
Depending on the number and its correlation with price and volumes of BTC, traders can either pick out bullish, bearish, or neutral signals.
Notably, in the past month, BTC prices surged, adding 30%, and accompanying the impressive move were strong trading volumes and an uptick in the number of open interests.
The higher the open interest–buoyed by higher prices and increasing trading volumes, the stronger the underlying momentum.
It also reveals the unwillingness of traders/investors to liquidate their BTC holdings in expectations of better prices in days ahead.
On the flip side, if prices and volumes are declining while open interest is rising, traders are advised to exit their positions for stablecoins because the underlying trend is weak.
Open Interest is a Less Significant Indicator
Nonetheless, a leading investor now says Bitcoin Open Interest should not be used as a strong indicator since it is more of psychological than practical, adding that the interest of Bitcoin derivatives products is expected to rise, further thrusting the number of OI higher.
“High OI literally means that a lot of longs and shorts are being opened, which indicates interest in Futures trading,” he added. ‘The fact that Bitmex has been able to hit this mark despite a ton of new competitors, coupled with dead Spot volumes shows $BTC price is currently priced by Futures.”
High OI literally means that a lot of longs and shorts are being opened,which indicates interest in Futures trading.The fact that Bitmex has been able to hit this mark despite a ton of new competitors,coupled with dead Spot volumes shows $BTC price is currently priced by Futures
— Anondran (@AnondranCrypto) January 30, 2020
As it is, the BTC price is stagnant. If BTC bulls fail to close above the $9,500 mark, an important resistance level, odds are prices may tank despite the number of open interests surpassing the $1 billion mark.