Analysis of Open Interest Trends
Bitcoin derivatives open interest has seen a significant decline of 31% since October. This deleveraging signal, according to analysis by CryptoQuant, historically marks market bottoms and sets the stage for potential bullish recovery.
The reduction in open interest on Bitcoin derivatives helps to purge excess leverage that has accumulated in the market. Crypto analyst Darkfost noted that such declines have frequently coincided with significant market bottoms in the past, effectively resetting the market and establishing a stronger foundation for a potential bullish recovery.
However, the analyst cautioned that if Bitcoin's price continues to fall and it fully enters a bear market, open interest could contract further. This would signal deeper deleveraging and a potential extension of the current correction. Open interest is defined as the number or value of crypto derivatives contracts that remain unsettled and open.
Understanding Deleveraging and Liquidations
Deleveraging plays a crucial role in reducing the risk of cascading liquidations. These liquidations can trigger sharp price drops, similar to the crash observed on October 10. The speculative frenzy in crypto derivatives last year led to a substantial surge in Bitcoin's open interest, which reached an all-time high of over $15 billion on October 6, according to the analyst.
During the peak of the previous bull market in November 2021, Bitcoin's open interest on a major exchange peaked at $5.7 billion. This indicates that open interest nearly tripled in 2025. A price rally accompanied by declining open interest often suggests that leveraged short positions are being liquidated or closed, thereby removing selling pressure from the market.
This short squeeze scenario can be considered bullish because it implies that the price increase is driven by spot buying rather than excessive leverage, which contributes to a more sustainable rally. Spot Bitcoin prices have shown a gain of almost 10% since the beginning of this year, lending support to this theory.
Current Market Sentiment and Data
On the Deribit Bitcoin options markets, open interest is highest at the $100,000 strike price, with a notional value of $2.2 billion. This suggests that traders are exhibiting bullish sentiment, as there are more long call options than short put options. However, crypto derivatives provider Greeks Live reported on Wednesday that the derivatives market has not yet entered a structurally bullish phase.
The total Bitcoin open interest across all exchanges and derivatives markets currently stands at approximately $65 billion, according to data from CoinGlass. This figure represents a decline of roughly 28% from the peak of just over $90 billion recorded in early October, which aligns with the percentage figures provided by CryptoQuant.