Markets
Decoding Bitcoin’s Drop in Notional Open Interest to $30 Billion
Notional Open Interest for Bitcoin (BTC) Futures and perpetual futures, a crucial gauge of market sentiment, declined about 18% from $37 billion to $30.2 billion in a month, alongside a 14% drop in the cryptocurrency’s spot market price, according to the data source. Coin glass.
At first glance, the data indicates that leveraged long or bullish bets anticipating a price increase have been unwound over the past four weeks. In other words, the decline in BTC price is being reinforced by the unwinding of bullish bets.
This interpretation may be partially correct at best and mask the underlying bullish currents in the market.
Open interest refers to the number of active or open contracts at any given time, and notional open interest is calculated by multiplying the number of units in a contract by its current spot price. Therefore, changes in the asset price impact notional open interest even if the total number of contracts remains stable, giving a misleading picture of market activity.
This seems to be the case in the BTC market.
According to Coinglass, open interest has remained stable above the 500,000 BTC mark for four weeks. At the same time, perpetual funding rates charged by exchanges every eight hours have remained consistently positive, indicating a bias towards bullish bets.
The combination of stable BTC open interest and positive funding rates, coupled with declining notional open interest, suggests that some traders have established new long positions, offsetting the supposed unwinding of bullish bets by other market participants.
This is a sign that traders are still not hesitant to place long positions, according to Laurent Kssis, crypto ETF specialist at CEC Capital.
“This assumption is absolutely correct. Furthermore, new protection strategies are being implemented while the market remains very uncertain. Remember that the last liquidity collapses were significant enough to push the market below $60,000. The hesitation to place long orders is still not dominant, but hedging is a fairly significant part of the trading.”
Traders may be hoping that once the selling pressure from refunds and Mt. Gox miners subsides, bitcoin could resume its upward trend, in line with the Nasdaq.
A similar conclusion can be drawn from the constant positive spread between futures and spot prices, commonly referred to as the “basis.”
“The basis has declined slightly but remains attractive, so there is still demand for long positions within the basic trade“And expectations for a breakout are strengthening as macro tailwinds build and selling pressure is likely to dissipate soon, so investors could accumulate strategic long positions while funding rates are low,” Noelle Acheson, author of the Crypto Is Macro Now newsletter, told CoinDesk.
Activity in the cash and options markets also suggests an upward trend.
According to Griffin Ardern, head of options trading and research at crypto financial platform BloFin, crypto exchange Bitfinex was the source of the bullish pressure during the price decline.
“Bitfinex whales bought the dips [in the spot] “Since late June, but I have not seen similar signals in other derivatives markets,” Ardern told CoinDesk.
Long margins on Bitfinex, which involve using borrowed funds to buy an asset on the spot market, have been steadily increasing since June.
Meanwhile, according to QCP Capital, traders have been buying upside bets in the options market.
“Despite the selloff, the options market is still heavily biased to the upside, suggesting that the market is still pricing in a year-end rally. This is consistent with the desk’s observation of significant buying interest in longer-dated options at the $100,000/$120 strike price.” [calls]”, QCP said in a market update Wednesday.