Bitcoin Massive Decline May be in the Cards as OI Hits New ATH at $40.5B

The recent surge in Bitcoin futures open interest (OI) to a new all-time high, combined with rising bullish sentiment, has raised concerns about a potential pullback. 

Notably, Open Interest in the Bitcoin futures market recently spiked to a new all-time high of $40.5 billion, according to data from Coinglass. In addition, OI across major crypto exchanges has spiked to a new peak of $20.89 billion, CryptoQuant data confirms.

Bitcoin Open Interest Spikes

This new peak comes days after Open Interest rose to a previous ATH of $20 billion, surpassing the earlier top of $19.75 billion, per CryptoQuant. Meanwhile, this figure climbed to $40.38 billion on Coinglass, and has now hit the latest peak of $40.5 billion.

The disparity in Bitcoin futures Open Interest between CryptoQuant and Coinglass stems from the number of exchanges where each platform aggregates its data from. While CryptoQuant focuses on major crypto exchanges, Coinglass gathers data from a much wider source, including CME and others.

Meanwhile, the latest record-setting OI suggests heightened investor participation in the futures market, a trend that could lead to higher volatility. 

Such peaks in OI have coincided with massive price movements and potential corrections as bullish momentum grows. Crypto exchange Uphold’s Research Head, Dr. Martin Hiesboeck, confirmed this in a recent disclosure.

Bitcoin Futures Open Interest Hits All-Time High at $40.5 Billion

The surge in open interest signals increased leverage in the market. Record open interest usually is followed by a huge decline.

— Dr Martin Hiesboeck (@MHiesboeck) October 21, 2024

Currently, Bitcoin is trading around $67,889, having gained nearly 5% over the past week. It breached the $68,000 mark before facing resistance just below $69,000. 

FOMO Kicking in

While these price levels indicate a strong recovery, the massive spike in OI could indicate overleveraged positions in the market, which, if liquidated, could lead to a sharp price correction. 

A similar scenario unfolded in March, when Bitcoin’s OI hit $39 billion before a substantial price move followed. For context, OI hit a new peak of $39.03 billion on March 29, with BTC trading for $70,838. Bitcoin faced turbulence shortly after, collapsing to a low of $59K in May, a month later.

Notably, at the current recovery stage, multiple traders might be experiencing FOMO, driving them to take more aggressive positions, often using leverage. 

Such sentiment can fuel price rises, but it also increases the likelihood of a liquidation cascade if Bitcoin fails to hold major support levels. The market’s overextension, as indicated by the OI, could consequently trigger a bearish turn if prices drop below crucial thresholds.

Bitcoin Hashrate Hits New Peak

Meanwhile, Bitcoin’s hashrate recently hit an all-time high of 769.82 million TH/s, according to Bitinfocharts, amid the growing FOMO and the recent price recovery. Typically, an increase in hashrate suggests confidence in the network, as miners are investing more computational power. 

However, while this is a positive signal for network security, its direct impact on short-term price movements is less certain. The rising hashrate indicates that miners are confident in Bitcoin’s long-term value, but it could also suggest that mining competition is heating up, potentially impacting miner profitability.

Nonetheless, the Puell Multiple, which stands at 0.94, suggests that miners are currently seeing moderate revenues, implying that they are not under pressure to sell large amounts of Bitcoin. 

Interestingly, the Miners’ Position Index (MPI), sitting at -1.33, confirms this, showing that miners are holding onto their coins and selling less than the annual average. Both metrics indicate that, at least for now, miners are not contributing to selling pressure.