Bitcoin just hit a record in open interest — expect imminent volatility

Stay calm and avoid getting carried away by the possibly imminent all-time highs for Bitcoin and Ethereum. Open interest needs to get wiped out sooner or later.
As the Bitcoin
BTC

tickers down
$68,269

and Ethereum
ETH

tickers down
$3,697

rally has gained pace, we have seen open interest in both assets return to record-high levels reminiscent of the feverish days of the 2021 rally. This frantic increase in trading activity is a sure sign that the bull market is finally in full swing. However, the parallels with 2021 are also a more worrying indicator that the market is overheating, with further volatility for BTC and ETH prices likely around the corner.

That isn’t to say we are anywhere near the all-time highs we will see later in the cycle, but overzealous investors would be wise to exercise a certain amount of caution at these lofty prices. Indeed, Bitcoin has risen more than 50% over the past 30 days and is closing in on its ATH, while Ethereum is shooting the lights out with a 50% rise over the same time period.

But it’s not just this rapid price appreciation that foreshadows imminent volatility in the two biggest crypto assets. Technical indicators like open interest and Bitcoin funding rates — a reliable forecasting tool when taken in aggregate — paint a picture of a rather frothy market.

Related: Why Solana will prevail despite Ethereum ETFs
Last week, the funding rates in Bitcoin perpetual futures listed on Binance surpassed 100% for the first time in at least a year, which means that leverage is skewed toward the bullish side. Meanwhile, rising open interest represents a spike in the volume of open BTC and ETH derivatives positions on exchanges, including both long (buy) and short (sell) positions in Bitcoin and Ethereum futures or options contracts. Together, high funding rates, extreme price movements and rising open interest often act as a warning sign for traders, particularly those using leverage.

Open interest in Bitcoin hit $31 billion on March 4, easily surpassing the $24.3 billion record set on April 14, 2021. Bitcoin’s price was sitting close to current levels at that time, opening at $63,524 — before falling some 23% to $49,078 by April 26, 2021.
Meanwhile, open interest in ETH futures sat around $12 billion as of March 4, edging closer to the $13 billion peak seen on Nov. 9, 2021 — the day ETH opened at an all-time high of $4,810. By November 19, ETH fell to $3,996, 17% below its peak.


Bitcoin open interest as of March 4, 2024. Source: CoinGlass
Drawing parallels with 2021, it seems apparent that BTC and ETH need a breather. Bitcoin has soared more than 180% in the year leading to March 4. In some major currencies, including the Argentine peso and the Japanese yen, it has already surpassed its previous record. ETH is lagging behind, having risen more than 120% in 12 months.
There are a number of reasons for Ether lagging behind Bitcoin in terms of price movements, not least the fact that the deadline for a spot ETH ETF approval is still a few months away. We can expect further price appreciation in the lead-up to this historic decision. Similarly, the Bitcoin halving slated for next month will almost certainly be a catalyst for further price increases, if history is any indicator.

So the rising open interest and funding rates don’t change the fundamentals around BTC and ETH — fresh all-time highs are still all but guaranteed this cycle. They’re simply a sign that the crypto market is getting away with itself. Such frantic trading isn’t just down to professional traders or long-term believers in crypto — it also indicates a rise in FOMO, and that’s a house of cards that can easily crumble in the short term.

In such frothy markets, it’s particularly important to have a solid strategy and stick to it, without allowing emotions to get in the way. For options traders, this means watching the charts and the data, not just the green candles. For buy-and-hold investors, it’s remembering that crypto is a volatile asset class and all signs point to further volatility incoming.

But most importantly, it’s a reminder for anyone in crypto to stay calm and avoid getting carried away with all the excitement of assets soaring towards their ATHs. There will be plenty more chances to get excited in the coming months. It’s those who keep their cool amid the market turbulence that will be the most successful in this bull run.
There are a number of reasons for Ether lagging behind Bitcoin in terms of price movements, not least the fact that the deadline for a spot ETH ETF approval is still a few months away. We can expect further price appreciation in the lead-up to this historic decision. Similarly, the Bitcoin halving slated for next month will almost certainly be a catalyst for further price increases, if history is any indicator.

So the rising open interest and funding rates don’t change the fundamentals around BTC and ETH — fresh all-time highs are still all but guaranteed this cycle. They’re simply a sign that the crypto market is getting away with itself. Such frantic trading isn’t just down to professional traders or long-term believers in crypto — it also indicates a rise in FOMO, and that’s a house of cards that can easily crumble in the short term.

In such frothy markets, it’s particularly important to have a solid strategy and stick to it, without allowing emotions to get in the way. For options traders, this means watching the charts and the data, not just the green candles. For buy-and-hold investors, it’s remembering that crypto is a volatile asset class and all signs point to further volatility incoming.

But most importantly, it’s a reminder for anyone in crypto to stay calm and avoid getting carried away with all the excitement of assets soaring towards their ATHs. There will be plenty more chances to get excited in the coming months. It’s those who keep their cool amid the market turbulence that will be the most successful in this bull run.
Bitcoin’s 4-year halving cycles are widely associated with the subsequent crypto market bull runs that generally lead to new Bitcoin all-time highs. But is the much-awaited halving the right time to invest in the world’s largest cryptocurrency?

Based on historical Bitcoin price data, the halvings could be a great time to buy for investors with longer time horizons, according to Vetle Lunde, a senior analyst at K33 Research. Lunde told Cointelegraph:

“While the immediate post-halving performance has tended to be sluggish, each halving has proven to be a solid point to enter the market. 150-400 days after the halving tends to be the sweet spot where the compounding effects of subdued miner selling pressure impact BTC positively directionally.”
Bitcoin breached the $60,000 mark for the first time in over two years on Feb. 28, 47 days before the halving, and the world’s first cryptocurrency is up 30% over the past week.

The Bitcoin halving halves the rate at which new BTC are issued into circulation every four years. The network will stop producing new Bitcoin once 21 million coins are created by the year 2140, which will be the year of the last Bitcoin halving.


BTC/USD year-to-date chart. Source: CoinMarketCap
According to Bryan Legend, investor and CEO of Hectic Labs, the pre-halving period can be a profitable time to hold Bitcoin. He told Cointelegraph:a larger portion of its rewards. In the direct aftermath of the halving, hashrate tends to plunge, block production stalls from 10 to 15-25 minutes, leading uncertainty to grow.”
However, Lunde only expects a brief correction, before Bitcoin resumes its price rally to new all-time highs.

“Based purely on data from past performance and the diminishing impact of halving rallies, Bitcoin could see a 130-150% rally in the year following the halving, which would lead to a peak in the range of $125,000 - $150,000 in 2025.”
Bitcoin’s end-of-year price could reach around $80,000 to $85,000 in the worst case and $120,000 to $130,000 in the bullish case, according to Hectic Labs’ CEO, Bryan Legend. He told Cointelegraph that this will mainly depend on macroeconomic conditions:

“ [The 2025 bull market] will be dependent on the state of financial markets and the fundamental outlook on the world... If the bull market does carry through into 2025, we may indeed see higher prices with a BTC top of $180,000 - $200,000.”
Related: US gov’t moved $922 million of seized Bitcoin after BTC price broke $60,000

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.