- Historically, Bitcoin experienced a 50% correction after reaching a new high in open interest.
- It’s the start of a new cycle – is this reason enough for Bitcoin not to repeat history?
Bitcoin [BTC] has seen a 6.8% decline over the past two days, even after accounting for the increase from $64.5K to $66.5K. An Insights post on CryptoQuant pointed out that the Bitcoin market experienced significant corrections every time Open Interest (OI) crossed the $13 billion mark.
The OI reached $17.7 billion on March 28th. This was followed by the losses we experienced in the last few days. Will BTC see a recovery or a downtrend over the next two months after driving a large portion of retail participants out of futures markets?
Bitcoin Open Interest has once again surpassed the $13 billion mark
Source: CryptoQuant
As the Insights post points out, whenever BTC OI rises above $13 billion, we see a major correction. This is because the extreme highs of OI occur when the market is in a state of euphoria or has become significantly larger.
Open interest highs in 2021 reached $14.8 billion in April 2023 and $16.6 billion in November 2021. Both times, BTC experienced a 50% decline over the next 70 days.
The recent OI increase was $18.2 billion, but that doesn't automatically mean we would see a 50% decline in the next two months. During the 2020 rally, OI convincingly broke previous highs. This meant that the capital inflow was many times higher than before.
The liquidation charts suggest a bullish short-term reversal
Source: Hyblock
The reason there is a lot of volatility when OI is high is because price is attracted to liquidity. When a market is supported by spot market demand, there is little chance of significant fluctuations in a short period of time due to spot market orders.
As the market approaches a local peak and prices are driven higher by interest in the futures market but by lower spot demand, the possibility of liquidation cascades increases significantly. Participants should be aware of this.
At press time, the cumulative delta of fluid levels was strongly negative. Short liquidations significantly outperform long liquidations. Therefore, prices could rise to wipe out the bears.
The $68.2K, $69.6K, and $70.3K levels are levels that BTC could rise to in the coming days. At these levels there was a large concentration of short-term liquidations that could be eliminated.
Source: Hyblock
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The longer-term outlook for Bitcoin has highlighted two areas of interest. In the south, the area was $60.6k, while in the north, the $74k-$74.6k zone would prove crucial.
With the Bitcoin halving just under three weeks away, there could be greater volatility before the true bull market begins.
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