As Monero (XMR) rose above $600 and futures open interest approached its January peak, analyst Doctor Profit warned of a major liquidation wave.
According to SoSoValue data cited by CoinDesk, the dollar value of open interest in Monero futures exceeded $300 million. This figure, which represents the total value of contracts that have not yet been closed, approached the peak of about $320 million recorded in January.
The increase is not limited to dollar terms. Open interest denominated in XMR also rose from about 400,000 to 515,730 XMR in a week, reaching its highest level in five weeks. Meanwhile, the spot price topped $600, its highest level since January.
A sharp drop followed January’s rally
Doctor Profit said open interest reached a similar level in January, after which XMR lost 66% of its value in 20 days. The analyst argued that the current concentration could also set the stage for a major liquidation event.
Monero rose to about $790 on January 14, then fell below $300 in the first week of February. According to Coinglass data, several million dollars’ worth of long positions were forcibly closed during that period.
How can leveraged positions amplify a decline?
Leverage allows investors to open positions larger than the collateral they put up. If the price moves against their expectations, their collateral may prove insufficient, and the exchange forcibly closes the position. The liquidation of long positions in this way can add selling pressure to a falling market.
This time, both the price and open interest are rising. However, not all current open interest consists of long positions; the scale of any new liquidation wave will depend on the direction of positions, leverage levels, and price movements. For this reason, Doctor Profit’s historical comparison reflects expectations about rising risk, not a selling wave that has already occurred.
We also covered Monero’s recent rally in Santiment’s altcoin analysis; this time, the new data highlight the futures activity accompanying the rally.
Not investment advice.