Is the rise in open interest on Bitcoin futures of concern?

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The overall rise in open bitcoin forward interest rates is slightly lower than historical levels.

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The overall rise in open bitcoin futures interest is slightly lower than historic levels reached at the top of the local bitcoin market in April. Is this a source of concern?

While open interest and leverage futures bets favoring the long side have certainly increased in recent weeks with bitcoin’s feverish rally beyond previous all-time highs, there are a few key distinctions between the structure of the market. in April and what we see now.

Source: Glassnode

The biggest and perhaps the most important difference between the derivatives market in April and today is the percentage of open interest futures that uses BTC as collateral to enter a position. With bitcoin derivatives markets, you can use BTC or stablecoins as collateral.

If you are long (directionally bet on prices to rise) using Bitcoin, then if the price decreases your P&L position (profit and loss) and your collateral decreases in value in tandem, it increases the liquidation price of your position. This can lead to mass market sellouts, similar to what happened in May after the April highs.

Thus, it is very important that the percentage of open interests using BTC as collateral has significantly decreased since April, from a high of 70.17% to 45.04%. This is a trend we’ve been covering in detail since July, when we broke down some of these dynamics in The Daily Dive # 028 – Structural Changes in the BTC Derivatives Market.

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

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