Key Points
- Bitcoin has historically experienced a 50% correction after hitting a new high in Open Interest.
- Despite a recent drop, Bitcoin could potentially rally to higher levels in the coming days.
Bitcoin has a history of witnessing a 50% correction after reaching a new peak in Open Interest (OI).
Is this cycle going to be different for Bitcoin?
Bitcoin’s Recent Drop
In the last two days, Bitcoin has seen a 6.8% drop, even after factoring in the bounce from $64.5k to $66.5k. An Insights post on CryptoQuant highlighted that each time the OI exceeded the $13 billion mark, significant corrections followed in the Bitcoin market.
On March 28, the OI hit $17.7 billion. This was followed by the losses seen in recent days. With a significant number of retail participants eliminated from the futures markets, the question arises – will Bitcoin recover or continue to trend downward over the next two months?
Bitcoin’s Open Interest History
The Insights post noted that whenever Bitcoin’s OI surpasses $13 billion, a major correction typically occurs. This is because extreme highs in OI usually occur when the market is in a state of euphoria or has grown significantly.
In 2021, the Open Interest peaks reached $14.8 billion in April 2023 and $16.6 billion in November 2021. Both times, Bitcoin experienced a 50% retracement within the following 70 days.
The recent OI surge measured $18.2 billion, but this doesn’t necessarily mean we should expect a 50% drop in the next two months. During the 2020 rally, the OI surpassed previous highs convincingly, indicating that the capital inflow was much greater than before.
High OI tends to see large volatility because price is attracted to liquidity. When a market is supported by demand from the spot market, significant volatility in a short amount of time is challenging due to the spot market orders.
When the market is near a local top, and prices are driven higher by interest in the futures market but with less spot demand, the risk of liquidation cascades significantly increases. This is something market participants should take into account.
At the time of writing, the cumulative liq levels delta was highly negative. Short liquidations outnumber long liquidations by a considerable margin. Therefore, prices could be attracted higher to wipe out the bears.
Bitcoin could potentially rally to levels of $68.2k, $69.6k, and $70.3k in the coming days. These levels have a high concentration of short liquidations that could be swept.
The longer-term outlook for Bitcoin points to two areas of interest. To the south, it was the $60.6k region while the $74k-$74.6k zone to the north would prove key.
With the Bitcoin halving event just under three weeks away, we could be in for more volatility before the true bull run begins.
