Bitcoin coin leverage plummets, open interest drops 30% indicating a bullish rebound signal

A notable signal has recently emerged in the cryptocurrency market. The open interest( in Bitcoin derivatives has decreased by approximately 30% since October last year. On January 15th, PANews cited Cointelegraph and analyzed data from CryptoQuant, indicating that this sharp decline in coin leverage signifies a normalization process of excessive risk exposure in the market.

Structural Changes in the Derivatives Market and the Clearing of Excessive Leverage

The decline in open interest is not merely a reduction in trading volume. Market experts interpret this as a “leverage reduction signal,” emphasizing that accumulated excessive positions are being unwound.

Looking at historical precedents, similar rapid decreases in open interest have marked important market lows. In fact, on October 6th last year, Bitcoin’s open interest exceeded $15 billion, reaching an all-time high. The extremely high leverage levels at that time were signals of intensified market speculation.

Short Squeeze Signal vs. Market Structural Immaturity

The current rise in Bitcoin driven by spot buying, along with the decreasing open interest, is generally viewed positively. It indicates that short positions)short selling( using coin leverage are being liquidated, and such “short squeeze” phenomena can accelerate price increases.

The fact that the price rise is driven by spot buying rather than excessive leverage suggests a healthier market structure. With Bitcoin’s price recovering to around $88.90K, such liquidation of bearish positions could lay the foundation for further gains.

However, derivatives analysis expert Greeks Live maintains a cautious stance. They assess that the current derivatives market has not yet fully entered a bullish phase structurally. Instead, the current trading structure is closer to a passive response to sharp price movements, and more time may be needed to establish a genuine bullish trend.

Coin Leverage Reduction, Future Scenarios and Implications

The future market development could unfold in two scenarios.

First, the positive scenario. If the current leverage reduction trend continues, excessive market risk could be gradually alleviated, laying a more solid foundation for a robust rebound. Historically, such clearing processes have led to important market lows.

Second, the bearish intensification scenario. If Bitcoin prices continue to decline and enter a full-fledged bear market, open interest could decrease even more sharply. This could mean more severe coin leverage liquidations and a prolonged market correction.

The current 30% decrease in open interest signals that leverage risk in the market is being alleviated. However, as Greeks Live evaluates, for the structural changes in the derivatives market to become a true bullish signal, additional spot buying demand and improved market sentiment are necessary.