The sudden drop in Ethereum price in mid-August led to a drop in the open interest metric, reaching its lowest level in months. However, the recent increase in buying pressure caused a significant price spike. These sudden market movements are often associated with liquidations in the futures market. It is important to investigate whether this happens again.

The graph provided depicts the Open Interest metric, which represents the total number of open positions in the perpetual futures market. Higher values ​​usually indicate increased market volatility.

As the chart reveals, the recent price spike coincides with a sharp increase in Open Interest. This suggests that the futures market may be the driving force behind the recent bullish rally. A significant spike in Open Interest implies the occurrence of short liquidations, pushing the market upwards.

However, despite the consistent uptrend in the Open Interest metric, traders need to exercise caution. While increasing values ​​can indicate a potential upward market move, it is important to monitor this indicator closely, as high readings may be accompanied by heavy liquidations, potentially leading to an unexpected market downturn.

Written by Greatest_Trader