There are lots of rumors currently about the quantity of SOL tokens that could be dumped by FTX further to the court decision expected on Sept. 13. Due to these rumors, SOL token price initially plummeted, before finally rebounding on Sept. 12. The reason might be only technical: further to the price decrease, the long traders need to buy more SOL to avoid liquidation. Therefore, you may wonder when it is the right time to buy SOL tokens again. I will propose here a method based on open interest.
How to Use Open Interest to Decide if It's the Right Time to Buy SOL
Open interest is a measure of the total number of open futures contracts on an asset. It can be used to gauge market sentiment and to identify potential buying and selling opportunities.
In the context of SOL, an increase in open interest could indicate that there is more buying interest in the market. This could be a bullish signal, as it suggests that more traders are expecting the price of SOL to go up.
However, it is important to note that open interest can also increase in a bearish market. This could happen if traders are opening short positions, which are bets that the price of SOL will go down.
Therefore, it is important to look at other factors in addition to open interest when making a decision about whether to buy SOL. These factors could include price action, volume, and technical indicators.
Here are some things to look for when using open interest to decide if it's the right time to buy SOL:
- A rising open interest accompanied by rising prices: This is a bullish signal, as it suggests that there is more buying interest in the market and that the price of SOL is likely to continue to go up.
- A falling open interest accompanied by falling prices: This is a bearish signal, as it suggests that there is more selling interest in the market and that the price of SOL is likely to continue to go down.
- A rising open interest accompanied by flat or declining prices: This could be a sign of a potential trend reversal. If the price of SOL is not moving up despite the increasing open interest, it could be a sign that the bulls are losing control of the market.
What Happened With Open Interest The Last Time SOL Pumped
The last time SOL pumped was in early January 2023. Let's look at the evolution of the open interest in that period by using Coinglass.com:
As you can see on the graph above, around January 3, there was a rising open interest accompanied by rising prices, which was a bullish signal. Therefore, what was supposed to happen finally happened. There was a huge price increase up from $9 to $24 in a few days.
What Open Interest Says About SOL Today
Let's look at the SOL open interest as of today:
We can see above a slightly rising open interest accompanied by declining prices, which could mean that the bulls are losing control of the market.
That's why I did no buy SOL today, despite the sudden price increase. I will likely start buying it again when both curves move up in the same direction.
Disclaimer: The crypto market is volatile and unpredictable, and no amount of analysis can guarantee profits. Please do your own research.
