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) and Ethereum (ETH) 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.
