BTC About Binance's Open Interest:
I see many people worrying about the big increase in Binance's Open Interest the past days which is valid.
I'm here to give some additional thoughts on the matter:
First off, I'm not saying we'll get a similar move as per the highlighted area on the chart from 2020. I'm simply showing how an increase in Open Interest does not have to mean a full retrace every time.
It's true that this did happen while we were in this current range.
I do think it's important to not have too much of a recency bias though. Obviously anything throughout 2022 ended up in downside so it's also important to watch data outside of that area.
Just in case it is eventually "going to be different" 😉
If the open interest increases and even if it would be mostly longs. As long as it is accompanied with plenty of spot bid. Then these longs have nothing to worry about or a reason to cover their position.
That's why spot is always an important thing to watch.
We've had this on the downside for most of the year. Funding was negative, shorts were shorting support.
But because there was also a lot of spot selling going on these shorts were often in profit immediately and therefore were sitting comfy for most of the move.
Good to note:
1. The Open Interest on the chart is denominated in BTC so the actual OI in USD value isn't at ATH's as it may seem on the chart. 2. This time, price is lagging a bit behind vs the increase in OI so that's good to watch. 3. Funding still mostly negative.
Regarding the last point, yes there are longs entering the system but there are also plenty of shorts.
The fact that funding is negative, even with this increase in OI does still mean spot pairs are trading at a premium vs Perps/futures.
If this was not the case I'd be pretty confident in a big flush out of these longs.
But as long as spot bid stays steady (Very important), then I don't see an immediate danger for these positions.
If price starts trading lower then that's where you pay attention.
Just wanted to give my view on the situation as it seems like CT is obsessed with this open interest currently and many are shorting/sidelined solely because of it.
I'm not saying this would be a bad move, I'm just showing some examples/thoughts of why it doesn't have to mean an immediate flush out every time.
Eventually the market hits a point where spot bid is plenty and longs can get away with it, just like shorts did for most of 2022.This post is based on this twitter thread.