Open Interest Tracks Price, Leverage ProxyAug 19, 2021
A pattern you see with crypto markets that differs from other markets is how open interest tracks price. For the most part, this is because the vast majority of BTC open interest accounts for traders who are trying to increase their long exposure and delta-neutral players taking advantage of basis/funding.
While not perfect, we can use open interest as a rough proxy for the amount of leverage in the market. During this rally we’re seeing a welcome development — price is moving at a faster pace than open interest, implying some degree of doubt from futures/perp traders that this rally is real. Or in crypto terms — a lack of FOMO.
If BTC continues to rally, it seems reasonable to expect an influx of leveraged capital, perhaps on a clean break of $50K or even as late as ATHs (if it happens this cycle).