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Open Interest (OI) relates to Bitcoin derivatives products. These are bitcoin futures and perpetual swap products for traders that allow them to speculate on whether the price of Bitcoin will go up or down, without them having to actually own any Bitcoin.
Open Interest is the value of contracts that are open at a given period of time. The value is usually denominated in USD or BTC. So to calculate Open Interest we sum up all of the open positions at that time whether they are long or short positions.
If more traders open positions then Bitcoin Open Interest goes up, if traders close positions then open interest goes down.
Therefore, it gives an overall view of how much money is moving in and out of the bitcoin derivatives market.
Open Interest is a useful guide to see how much activity there is in the market. When the BTC price is trending up and OI starts to go up very quickly, it can be an indication that the market may be becoming frothy and unsustainable as lots of new money pours in to trade. The inverse is also true. So it can be a useful tool in the overall toolkit for Bitcoin investors to identify periods of extreme activity in the bitcoin derivatives markets.
On lower timeframes, traders can use BTC open interest alongside funding rates, price, liquidations, and other derivatives data to try and gain an edge. There are many examples of how this can be done.
One such example is that when price is falling, but funding rates and open interest are climbing, it can suggest that many derivatives traders are attempting to buy the dip, and *may* get caught out by further price falls. If a trader has identified this activity by observing derivatives data, it may help to inform their decision-making as to whether they take a trade or not.
We show OI data for the following derivatives exchanges:
The Open Interest chart is showing data from the derivatives market. Another chart that takes data from the derivatives market is Funding Rate.
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