Biggest Binance Platform Shows Worry About Crypto Contagion Is Growing

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One of the most-watched indicators of trader sentiment on market-leading derivatives exchange Binance suggests that anxiety over further fallout from this year’s crypto market meltdown has been growing.

According to researcher CryptoCompare, the seven-day average of open interest for Bitcoin perpetual futures has fallen 40.3% since early November. Open interest is the total number of futures contracts held at the end of the trading day. Bitcoin perpetual contracts – which, unlike traditional futures, do not expire – have long been a favorite of crypto speculators because they make it easier for them to maintain leveraged bets.

The drop comes as investors pull cryptocurrency from exchanges such as those run by Binance, which also operates the largest spot or cash exchange. Binance founder Changpeng “CZ” Zhao said on Wednesday that outflows had “stabilized” while warning employees that the industry’s recovery from the collapse of rival FTX in November would be “bumpy”. Bitcoin has fallen over 60% this year and is trading around $17,700.

“Given that Binance is the largest derivatives exchange, it is likely that the closing of positions by major institutional market players, who are now risk averse, has driven the OI down,” Jacob Joseph said. , research analyst at CryptoCompare. “The drop in open interest suggests a lack of speculation as traders become risk averse awaiting any further contagion in this uncertain market.”

Other derivatives exchanges report mixed comparable results, although this may be skewed due to Binance’s dominance in the sector. The seven-day average of Bitcoin perpetuals on Kraken has risen 46.5% since early November, according to CryptoCompare. Open interest on the Bybit and OKX exchanges fell 19.1% and 21.1%, respectively. Crypto.com’s open interest fell 83.1% over the same period.

Binance holds a nearly 60% share of the crypto derivatives market, having traded $1.45 trillion in November, according to CryptoCompare. Kraken’s share is less than 1%, while OKX and Bybit have market shares of 14.4% and 11% respectively, according to the researcher. CryptoCompare does not track market share data from Crypto.com.

Crypto derivatives are a bigger market than spot trading. When FTX announced bankruptcy on Nov. 11, the seven-day average derivatives trading volume was more than three times the spot, according to CryptoCompare. Currently, it’s about twice the size of the spot.

“We’re seeing open interest on perps starting to level off, but it’s certainly come down quite steeply,” said David Duong, head of institutional research at Coinbase Global Inc., which owns derivatives tracker Skew. “This is happening regardless of anything idiosyncratic for Binance. It certainly shows that in the very short term most sentiment thinks it will be limited or weaker.

–With the help of Vildana Hajric.

This article was provided by Bloomberg News.

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