Open interest is a number of futures contracts outstanding at a specific point of time. Watching the open interest helps traders (both on derivatives and spot market) to gauge the market sentiment. Large changes in the open interest, especially closer to futures expiration date, can be an indicator when certain participants are entering or leaving the market. The composition of the open interest (who holds the futures contracts and what kind) may give some clues to market direction.
For Bitcoin, open interest can be found in the report, published every Friday by CFTC (Commodity Futures Trading Commission). The open interest there shows the number of Bitcoin futures contracts outstanding on CME (Chicago Mercantile Exchange). The CME futures are cash-settled and have a fixed day expiry.
You can check two different dissections of the Bitcoin futures open interest reported by CFTC:
by broad categories of market participants: https://www.cftc.gov/dea/futures/deacmesf.htm
by types of market participants:
Market participants have both short and long open interest. It means, they either went short or long the futures. Important that the total sum of all short interest equals to the total sum of all long interest. However, within each category or type of market participants, there can be drastically different number of shorts and longs.
For example, when the short open interest significantly exceeds the long open interest for Leveraged Funds, and the shorts are growing faster week over week, you may draw the conclusions about the moods in this specific group. The information helps you evaluate the strength of the existing trend and anticipate the upcoming price changes.