Bitcoin price faces correction risk as open interest increases rapidly amid low trading volume

Analysts have warned that Bitcoin prices could see a correction as futures market open interest rises to new highs in 2024 while volume remains low.

Experts suggest that the imbalance between rising leverage and falling activity could create conditions for a sudden price reversal if traders start unwinding long positions.

“Open interest has reached a new peak this year, and funding rates are at their highest level since June,” said Ilya Otichenko, principal analyst at CEX.IO. decryption. “But what is troubling is that trading volumes are trending down, meaning fewer traders are actively participating, but those who remain are highly leveraged. The market is becoming fragile and a loss of momentum could lead to a rapid correction.

Bitcoin experienced sharp fluctuations overnight, reaching a high of $67,922 before falling to $65,160 within an hour. The volatility wiped out $302.25 million in leveraged positions, while $185.9 million in long positions were liquidated as prices fell, according to CoinGlass data.

Bitcoin has since rebounded slightly, trading at $67,120 during European hours, according to TradingView data.

Otichenko noted that the discrepancy between open interest and volume makes the Bitcoin market highly sensitive to sudden changes in sentiment.

“Decreasing volume while leverage increases is a red flag. It creates an environment where even small price movements can trigger a liquidation cascade. As traders begin to take profits, especially on long positions, the market quickly It could collapse,” he explained.

Technical indicators further support the caution. Bitcoin is testing the $68,000 resistance level and is struggling to break above this level. The asset is also close to the upper bound of the Bollinger Bands, indicating a possible rebound. Indicators such as the RSI and MACD are showing bearish divergence, suggesting that the current bull market may lack the momentum to sustain further gains.

RSI (Relative Strength Index) measures the speed and change in price movements to indicate whether an asset is overbought or oversold, while MACD (Moving Average Convergence Divergence) measures momentum and trend changes by comparing moving averages. track and indicate possible reversals.

In a memo sent to decryptionBRN analyst Valentin Fournier emphasized the importance of institutional flows in recent market movements.

“Institutional support remains strong, with $371 million flowing into the ETF yesterday,” Fournier said. “Reflecting the growing confidence of market participants, the Fear and Greed Index has risen to 73. However, the market is currently at a critical juncture, with either an immediate breakout or increased selling pressure forcing a correction. Either.”

Bitcoin price fluctuations coincide with changes in political sentiment.

According to the polymarket, Donald Trump's probability of winning the 2024 presidential election has jumped to 58.9%, widening the gap with Kamala Harris at 40.9%. The 16-point difference reflects changing market sentiment as election day approaches, adding further uncertainty to the market.

Experts suggest that political developments could amplify Bitcoin's volatility. “The election results pose additional risks and investors may hedge their positions as the odds change,” Otichenko said. As Trump's odds increase, some traders may see the election result as a signal of a potential policy change, prompting them to adjust their strategies.

Edited by Stacey Elliott.