Open interest is an essential metric for understanding the futures market. It represents the total number of outstanding futures contracts that have not yet been settled. When open interest is high, it indicates that many traders have open positions on the market. For Ethereum, open interest has been ramping up continuously. But what does this mean? And more importantly, why should we be concerned?
Source: The recent charts for depict ever-increasing open interest. The continual upward trend in open interest indicates a growing number of investors betting on the future price movements of ETH, either up or down. While high open interest can be seen as a sign of heightened activity and interest in Ethereum, it also suggests that there is a lot of speculative trading happening. Speculative trading, as history has shown us, can lead to intense volatility.
When examining the attached open interest chart, one notices a stark divergence. While price has seen fluctuations and is showing signs of consolidation, the open interest continues to surge. This divergence can be a precursor to significant price swings. When there is a discrepancy between price movement and open interest, it often suggests that a considerable price shift is on the horizon.
This “scary” surge in open interest, paired with volatile price actions, could lead to what traders term a “long squeeze” or a “short squeeze.” If the majority of these open contracts are betting on Ethereum’s price to go up (long positions) and the price starts to drop, it could trigger a cascade of sell-offs.
This article was originally published on U.Today
Source: Cryptocurrency - investing.com
