Bitcoin Has Recovered Back Above $105,000 During Past Day, But the Rally May Not Be Sustainable

Data shows the Bitcoin Open Interest has seen a sharp jump alongside the latest recovery in the BTC price, a sign that may not be positive.

Bitcoin price kicked off the week with a crash to the $98,000 level, but the cryptocurrency now appears to be headed for a positive close to the week as it has recovered back above $105,000.

This latest recovery in the BTC price comes after a sustained decline that began at a new all-time high of $118,000.

Bitcoin Has Recovered Back Above $105,000 During Past Day

Bitcoin began to experience a strong rally last week that pushed it to a new all-time high. However, the rally stalled at this peak and the cryptocurrency started to decline.

This decline continued for several days and brought the coin to a low of $98,000. At this level, BTC found some support and began to rebound, leading to the recovery seen over the last few days.

As of writing, the cryptocurrency has even broken above $106,000 earlier today, though it has since retraced slightly and now trades at $105,700. Despite this pullback, BTC is still up about 4 percent in the last 24 hours.

One question that’s now bound to be on the minds of investors is whether this recovery will be sustainable. There are many factors at play here, but one that might point to a negative outcome is the trend in the Open Interest.

BTC Open Interest Has Just Seen A Big Jump

As explained by CryptoQuant community analyst Maartunn in a new post on Medium, the Bitcoin Open Interest has seen some rapid growth alongside the latest rally in the cryptocurrency’s price.

The “Open Interest” here refers to an indicator that keeps track of the total amount of BTC-related positions that are currently open on all centralized derivatives exchanges.

When the value of this metric rises, it means the derivatives users are opening up fresh positions in the market. Typically, the leverage present in the sector goes up when this trend forms, and the asset can start behaving in a more volatile manner.

On the other hand, the indicator going down implies the holders are either closing up positions of their own accord or ending up getting forcibly liquidated by their platform. BTC can see calmer price action following such a decrease.

Now, here is the chart shared by the analyst that shows the trend in the Bitcoin Open Interest, as well as its 24-hour percentage change, over the past week:

As displayed in the above graph, the Bitcoin Open Interest has shot up over the past day, which suggests the traders have opened up a large amount of positions on the derivatives market.

The scale of the increase is quite notable, as is visible from the plot of the 24-hour percentage change. Maartunn has noted that this means the asset’s rally is being driven by leverage.

Historically, this is something that hasn’t been a good sign for any price move’s longevity, as mass liquidation events can become probable to take place in these market conditions.

Such events tend to be quite violent and can flip the market in the blink of an eye. It now remains to be seen whether the rally can push on regardless of the overheated derivatives market, or if a squeeze will cause at least a temporary pullback.