According to the cryptocurrency analysis platform CoinGlass, Bitcoin may face additional downward pressure as the open interest in futures contracts continues to increase in light of recent price movements.
In a post dated August 16, CoinGlass pointed out that the total open interest (OI) for Bitcoin futures—indicating the number of contracts that remain unsettled—has reached $29 billion, continuing an upward trend throughout the week.
This increase in open interest coincides with a 5% drop in Bitcoin's spot price over the past two days, a scenario that CoinGlass deems "somewhat unusual," given that the open interest has not yet adjusted to this price decline.
“As open interest rises, it indicates that both long and short positions are on the rise,” CoinGlass noted. This situation adds further leverage to the market, which could amplify price fluctuations in either direction.
Open Interest Trends Resemble Previous Price Drops
Notably, a similar increase preceded the significant 20% plunge in Bitcoin's price observed on August 5, which was a result of excessive leverage in the market being liquidated.
This situation, as highlighted by CoinGlass, suggests that Bitcoin may experience more downward movement in the near future. The firm elaborated:
Recent data from CoinGlass also shows that funding rates have turned negative. Such negative funding rates arise when futures contracts trade below the spot price of the underlying asset.
This scenario disincentivizes traders from maintaining long positions due to the associated costs, while simultaneously encouraging short positions, as traders could potentially benefit from the negative funding rates.
The end of the week is also marked by a notable expiration of crypto options, with around 24,000 Bitcoin contracts set to expire today, valued at approximately $1.4 billion according to Deribit data.
Despite the magnitude of this event, expirations typically exert minimal influence on spot markets.
Instead, the accumulation of substantial leveraged positions is likely to play a more significant role, especially when those positions are liquidated, resulting in increased price volatility.
Low $40,000 Bitcoin Still a Possibility
This recent development reinforces the pessimistic projections made by some analysts, who contend that Bitcoin could witness further declines before any substantial upturn occurs.
Timothy Peterson, founder of Cane Island Alternative Advisors, mentioned in a post on X that achieving both $40k and $80k is equally probable within the next 60 days.
Similarly, Markus Theilin, CEO of 10x Research, has identified the “low $40,000s” as the optimal re-entry point for bullish investors.
However, opinions remain divided regarding the likelihood of Bitcoin experiencing another significant drop or continuing on its path of long-term recovery.
Despite the prevailing uncertainty, confidence among investors in Bitcoin appears to be gradually resurging following its recovery after last week's decline. Recent findings from analytics firm Glassnode indicate a shift in Bitcoin owner behaviors towards HODLing.
This trend suggests that the market may have entered a phase of accumulation, where long-term holders are accumulating and storing Bitcoin with expectations of future gains. Such a shift could strengthen the case for a more sustained recovery in the months ahead.
