From the August low to now, the price has risen about 35%—but Open Interest (OI) has actually fallen nearly 20%, dropping to its lowest level since March. This divergence is worth taking a closer look at.
Normally, when a rally is driven by bulls chasing prices higher, it tends to look like this: prices rise, OI increases, and leverage builds up. The higher the market climbs, the more liquidation bombs are buried beneath it. Once there’s a pullback, longs get liquidated, prices fall, triggering even more liquidations—and a cascading sell-off follows.
But right now, the opposite is happening: prices are moving up while the market continues to deleverage.
What does this tell us? At the very least, this rally isn’t the typical kind built on a pile-up of highly leveraged longs—and the market is becoming less vulnerable to large-scale long liquidations.
So when should we be cautious? If prices keep rising while OI starts expanding rapidly again, that would signal a major return of speculative capital and an increasing risk of overheating.
But for now, that’s not what we’re seeing.
The underlying structure of this rally may be healthier than the price action suggests. The rise hasn’t been explosive, but it has a firmer foundation—a caution for those chasing the rally, but a positive sign for spot holders.
Want to talk about how this divergence might develop? Get in touch.
If you want to build a deeper understanding of crypto but don’t know where to start, or want to get up to speed quickly and learn about information asymmetries, come chat with me. You’ll gain access to firsthand insights and in-depth analysis!
Normally, when a rally is driven by bulls chasing prices higher, it tends to look like this: prices rise, OI increases, and leverage builds up. The higher the market climbs, the more liquidation bombs are buried beneath it. Once there’s a pullback, longs get liquidated, prices fall, triggering even more liquidations—and a cascading sell-off follows.
But right now, the opposite is happening: prices are moving up while the market continues to deleverage.
What does this tell us? At the very least, this rally isn’t the typical kind built on a pile-up of highly leveraged longs—and the market is becoming less vulnerable to large-scale long liquidations.
So when should we be cautious? If prices keep rising while OI starts expanding rapidly again, that would signal a major return of speculative capital and an increasing risk of overheating.
But for now, that’s not what we’re seeing.
The underlying structure of this rally may be healthier than the price action suggests. The rise hasn’t been explosive, but it has a firmer foundation—a caution for those chasing the rally, but a positive sign for spot holders.
Want to talk about how this divergence might develop? Get in touch.
If you want to build a deeper understanding of crypto but don’t know where to start, or want to get up to speed quickly and learn about information asymmetries, come chat with me. You’ll gain access to firsthand insights and in-depth analysis!
