Bitcoin price to record a squeeze, analysts say as BTC open interest hits multi month high at $12.37 billion

Bitcoin price has broken below the critical support at $27,260 to bring $26,000 in sight as momentum continues to fade.
Meanwhile, open interest has recorded a new multi-month high at $12.37 billion, the highest seen since the August dump.
Analysts anticipate a big move owing to the open interest levels, with longs likely to suffer.

Bitcoin (BTC) price could record a significant squeeze soon, in either direction, according to analysts who record that BTC open interest has reached a new multi-month high and tested a key area that often precedes a squeeze.

Also Read: Bitcoin dominance abounds despite 95% of BTC supply being stationary in past month

Bitcoin eyes retest of $26,000 psychological level

Bitcoin (BTC) price is down almost 3% in the last 24 hours and almost 5% in the last three days. The move has seen BTC lose the critical support at $27,260, with prospect for a continued slump as the Relative Strength Index (RSI) has recorded a solid move below the 50 level. The Awesome Oscillator (AO) indicator also corroborates the thesis, with red histogram bars abounding as it slowly edges towards the midline.

Increased selling pressure could send Bitcoin price to the demand zone between $25,887 and $25,140, with a break and close below the midline of this order block at $25,499 confirming the downtrend. This could send BTC to the range low at $24,800.

BTC/USDT 1-day chart

Meanwhile, Bitcoin open interest has recorded the highest level since the dump on August 18, at $12.37 billion. Open interest defines the sum of all positions, both long and short, that remain open in the market for a particular asset. When open interest surges for a declining market, it means more traders are taking short positions compared to the long-sided ones. Similarly, rising open interest for an uptrending market shows more traders are taking long positions compared to the ones shorting it.

According to analysts, a squeeze could be underway from this point. For the layperson, a squeeze refers to a rapid change in the price of an asset thanks to the forced closure of a position. In this case, it is likely to be a long squeeze, with a sudden fall in prices spooking long traders who react by panic-selling their holdings.

#Bitcoin Creeping up into that $8.7-$9.1B total Open Interest region again where we've seen squeezes occur the past few weeks.

Almost every time it went like:

Short squeeze -> Longs ape in -> Spot starts selling off -> Longs get squeezed and the bulk of the move retraces. pic.twitter.com/fURgjETMD3
— Hassan Bazzi (@bazzihassann) October 11, 2023

BTC Open Interest

On the flip side, if sidelined investors come into play, Bitcoin price could pull back above the critical support at $27,260, or in a highly bullish case, extend into the $28,000 psychological zone. Increased buying activity above this area could see BTC reclaim the August 17 highs by shattering $28,731. For a confirmed uptrend, BTC must break past the supply zone ranging between $29,177 and $29,770.

Open Interest, funding rate FAQs

How does Open Interest affect cryptocurrency prices?

Higher Open Interest is associated with higher liquidity and new capital inflow to the market. This is considered the equivalent of increase in efficiency and the ongoing trend continues. When Open Interest decreases, it is considered a sign of liquidation in the market, investors are leaving and the overall demand for an asset is on a decline, fueling a bearish sentiment among investors.

How does Funding rate affect cryptocurrency prices?

Funding fees bridge the difference between spot prices and prices of futures contracts of an asset by increasing liquidation risks faced by traders. A consistently high and positive funding rate implies there is a bullish sentiment among market participants and there is an expectation of a price hike. A consistently negative funding rate for an asset implies a bearish sentiment, indicating that traders expect the cryptocurrency’s price to fall and a bearish trend reversal is likely to occur.

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