Open interest in crypto trading: definition and movements during the last turbulent days [SERIOUS]

Open interest, in trading in general, refers to the total number of futures contracts (long and short position) that are currently opened in the market. This is usually interpreted as a indicator of imminent volatility, in a way or another.

Last week, we witnessed a significant increase in open interest, despite the relative immobility of Bitcoin's price. In hindsight, it was a signal that a big movement was going to happen. On August 16th, when the dump occured, the open interest started to decrease and it's now 25% smaller than last week (you can see data and charts on Coinglass or other analysis websites). This was due to an enormous amount of liquidations: more than 1billion$ of trading positions on Bitcoin (80% of that being Longs). Last time we faced so many liquidations was in November 2022, during the FTX collapse.

Many tried to speculate about the reasons of this dump, but there seems to be no direct cause. For example, the news of SpaceX selling its BTC dropped after the dump and the alleged sells happened months ago.

In this scenario, it's interesting to notice that ETH performed better than BTC in the last 7 days, probably due to the positive news related to its ETFs.

This post is not meant to be financial advise, as I'm not a trader. I just wanted to share with you what I learned about open interest.