Now imagine you wake up to find that you’re Bitcoin is suddenly worth 20% less. No, we’re not fearmongering. This TOO is a very real possibility, considering the historically high open interest that’s presently choking the market to death with its danger. So are you really ready for the storm that’s surely out there? In real life I’m still getting to know everyone, but on the Internet I’m Catherine. Here’s why I believe that complacency is crypto’s most expensive fault.

Is Bitcoin Really That Risky?

Let's be blunt: Bitcoin has always been a volatile beast. We all know that. These are the makings of a painful market correction. This latter case largely depends on open interest. And here’s the rub. You see, while everyone is focusing on Bitcoin’s sudden surge, the crypto analysts are sounding the alarm. As one well-known analyst pointed out, that was a “fake bullish divergence.” This false bullish signal prints positive divergence on the RSI, but with no corresponding price action to support it. Consider it like a mirage in the desert—you reach for it, only to discover more sand.

And it gets worse. Well, same analyst who called the broken trendline support after Bitcoin plunged into the low $80,000s. Trendlines are a bit like guardrails on a highway—once they snap, you’re going off the road, and probably into a ravine. All of these – phony bullish divergence, violated trendline supports – are indicative of a downleg that still has the potential for more risk.

High open interest means there are a ton of leveraged positions in the market. Over $56 billion worth, to be exact. Only 22% down from its all-time high. It’s the ultimate house of cards on a very weak foundation. Since being liquidated means that the price starts going down, this initiates mass cascading liquidation of positions. This can trigger a flood of panic sell orders, causing Bitcoin to crash much lower than anticipated.

Open Interest: The Silent Portfolio Killer

Now, you might be thinking, "So what? I'm a long-term holder. I'll just ride it out." That’s okay, but are you really prepared to see your portfolio evaporate? Don’t blindly hold on to the "hodl" mentality as it does. There's a difference between conviction and delusion.

Open interest is an indicator of the total number of contracts that are still open. This 5.05 billion comprises futures and options that are yet to be settled or expiring. High open interest means a lot of people are betting on Bitcoin's price, and many of them are using leverage.

Think of a crowded theatre. The show is great and everyone is happy, until someone calls out “Fire!” Panic sets in, and all the people at once go running for the exits. That’s exactly what happens with high open interest when the market goes down. Traders scramble to cover newly-leveraged shorts, deepening the wave of forced selling. This last-minute surge in selling creates a much sharper and more painful sell off.

Bitcoin’s previous all-time high rallies have all occurred with low open interest. This trend is encouraging, indicating that a cleaner market, with less overall leverage, leads to stronger, more durable growth. The current high open interest suggests the opposite: a market primed for a fall. Some analysts are even calling for a 20% crash, aiming for the $69,149 price point – the all-time high from 2021. This number should have real meaning. It’s a key support resistance confluence, therefore likely to be needed by large correction to make it a natural target, and not a coincidence.

Protecting Your Wealth: Actionable Steps

As a reminder, I’m not a financial advisor and this is not financial advice. But if you want to truly protect your wealth, you have to do something before it’s too late.

  • Review your risk tolerance: Be honest with yourself about how much pain you can handle.
  • Consider setting stop-loss orders: This is crucial for limiting your potential losses.
  • Diversify your portfolio: Don't put all your eggs in one volatile basket.
  • Take profits: Don't get greedy and wait for the absolute top.

In the face of current economic turbulence, this is especially treacherous when you’re holding a highly volatile asset such as Bitcoin.

Bitcoin's future is uncertain, but one thing is clear: ignoring the warning signs of high open interest could be a costly mistake. Don't let complacency nuke your portfolio. Act now, and protect your hard-earned wealth.