Bitcoin Price Faces Correction Risk as Open Interest Surges Amid Low Trading Volume

Analysts are warning of a potential Bitcoin price correction as open interest in futures markets climbs to new highs for 2024, while trading volumes remain subdued.

Experts have suggested that the imbalance between rising leverage and declining activity could create conditions for sudden price reversals if traders begin closing long positions.

“Open interest has reached a new peak for the year, and funding rates are at their highest since June,” Illia Otychenko, Lead Analyst at CEX.IO told Decrypt. “But the troubling part is the downtrend in volume. This means fewer traders are actively participating, but those that remain are heavily leveraged. The market is becoming fragile, and any loss of momentum could trigger a swift correction.”

Bitcoin experienced sharp swings overnight, reaching a high of $67,922 before dropping to $65,160 in less than an hour. This volatility wiped out $302.25 million in leveraged positions, with $185.9 million in long positions liquidated as the price fell, according to data from CoinGlass.

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

Source: TradingView

Otychenko noted that the mismatch between open interest and volume makes Bitcoin’s market highly sensitive to any abrupt shifts in sentiment.

"A drop in volume while leverage rises is a red flag—it creates an environment where even small price changes can spark liquidation cascades. If traders start locking in profits, especially on long positions, the market could unravel quickly," he explained.

Technical indicators further support the caution. Bitcoin is testing resistance at $68,000, a level it has struggled to break through. The asset is also approaching the upper boundary of the Bollinger Bands, signaling a potential pullback. Indicators like the RSI and MACD are showing bearish divergences, hinting that the current rally might lack the momentum to sustain further upward movement.

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

In a note sent to Decrypt, Valentin Fournier, an analyst at BRN, highlighted the importance of institutional flows in the market’s recent behavior.

“Institutional support remains strong, with $371 million in ETF inflows yesterday,” Fournier said. “The Fear and Greed Index has risen to 73, reflecting growing confidence among market participants. However, the market is now at a critical juncture—either we see a breakout soon, or the selling pressure could build, forcing a correction.”

The volatility in Bitcoin price coincides with shifting political sentiment.

On Polymarket, Donald Trump’s odds of winning the 2024 presidential election have surged to 58.9%, widening the gap with Kamala Harris, who stands at 40.9%. This 16-point lead reflects changing market sentiment as election day approaches, adding another layer of uncertainty to the market.

Experts suggest that political developments could amplify Bitcoin's volatility. “Election outcomes introduce additional risks, and investors may hedge their positions in response to shifting odds,” said Otychenko. As Trump’s odds increase, some traders may also see the election outcome as a signal for potential policy shifts, prompting adjustments in their strategies.

Edited by Stacy Elliott.