Bitcoin, Ethereum Open Interest Suggests A Squeeze Is Coming

The two largest cryptocurrencies by market cap, Bitcoin and Ethereum, have seen a significant rise in their open interest in the last couple of weeks. This comes even when the market is seeing struggling prices and investors have begun to take more conservative positions in the market. The drastic increase in the open interest across these two cryptocurrencies could have some significant implications for the crypto market as a whole.

Ethereum Spikes With Bitcoin 

Bitcoin open interest has been on the rise over the last couple of weeks, which has led to some interesting forecasts for the digital asset, and now, Ethereum has begun following the same trend. Over the last week, the Ethereum open interest relative to market cap had surged alongside that of bitcoin.

Both digital assets had actually hit new all-time highs in this regard, beating June 2022 levels. Bitcoin had risen to 3.21% while Ethereum had peaked at about 4.24% during the same time period. So ETH is seeing even more extreme figures compared to bitcoin. 

To put this in perspective, the open interest to market cap ratio of ETH compared to BTC since 2019 has always sat at around 0.46%, representing a fairly small margin. However, this had changed in the last two years and the gap is ever-widening. 

BTC and ETH open interest reach new ATH Source: Arcane Research

The Ethereum Merge had been the main reason behind this spike. Since interest in the second-largest cryptocurrency had peaked as the upgrade drew closer, institutional investors had begun to set up shop in Ethereum, leading to the wide gap that is now being observed.

Short Squeeze Incoming?

A spike in open interest, especially one that hits all-time high levels, has always had massive implications for the crypto market, even if just in the short term. The current levels suggest that derivatives in both digital assets are very high at the moment, leading to extreme leverage levels.

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