Open interest is the total number of open futures contracts. It says nothing about direction: every long has a matching short.
Reading it with price
Rising open interest with a rising price means new positions are entering the rally. Falling open interest with a rising price means shorts are closing, often forced. The same four combinations work on the way down. What matters is whether fresh money is arriving or positions are being closed.
Liquidations
A leveraged position is closed automatically when its margin runs out. The exchange's engine closes it with a market order, and that order pushes the price further, which can trigger the next liquidation. That chain is a cascade, and it's why crypto's big moves are often so sudden and why they overshoot.
After the flush
Once open interest has dropped sharply and funding has reset, the forced sellers are gone. Moves after that are usually quieter and easier to read. Long/short ratios describe where the crowd stands, but they count accounts or positions and differ from venue to venue, so read them for change rather than level.