Are Rising Bitcoin Futures Open Interest A Concern?

The aggregate increase in open interest rates for Bitcoin futures is slightly below the all-time level.

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The increase in aggregate open interest for Bitcoin futures is slightly below the all-time level reached in April in the local Bitcoin market. Is this a cause for concern?

While futures open interest and leveraged bets favoring the long side have certainly increased in recent weeks with Bitcoin’s feverish rally past previous all-time highs, there are some key differences between the market structure in April and April what we see now.

Source: Glassnode

The biggest and perhaps most important difference between the April derivatives market compared to today is the percentage of futures open interests that use BTC as collateral to take a position. Bitcoin derivatives markets allow you to use either BTC or stablecoins as collateral.

If you are long with Bitcoin (directionally betting on rising prices) then the liquidation price of your position increases as the price decreases your profit and loss of your position (profit and loss) and the value of your collateral. This can lead to mass market liquidations, similar to what happened in May after the April highs.

It is therefore of great importance that the proportion of outstanding interest using BTC as collateral has decreased significantly since April, from a high of 70.17% to 45.04%. This is a trend that we have been covering in depth since July when we break down some of these dynamics in The Daily Dive # 028 – Structural Changes to the BTC Derivatives Market.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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