March 30th could be a historic day that Bitcoin (BTC) fans will remember for a long time. PayPal not only rebounded 17% from the $ 50,300 low on March 25, but also officially confirmed that it will support crypto payments for US customers. In addition, the CME Group announced that its Micro Bitcoin Futures contracts will start on March 3rd with the contract size starting at 0.1 BTC each.
More positive news came when Morning Brew, a daily business newsletter with 2.5 million subscribers, finally came out Gold on the shelf and now shows the price of Bitcoin in its market area along with the SP 500, Nasdaq, Dow, 10 Year Treasury and JPMorgan.
March 30th also marks 3 weeks when the price of BTC has a daily candle close to over $ 50,000. As the market is pointing to a healthy period of consolidation, traders should therefore closely monitor the leverage that investors are using. Historically, dips occur when buyers are overly optimistic and any sharp price move above 8% leads to large cascading sell-offs.
The open interest in Bitcoin futures shows the size of the current long and short positions. Any time that number increases significantly, investors are at greater risk. Hence, it shows increasing market interest in the asset, but this also comes at the expense of potentially significant liquidations.
The graphic above shows an increase in the open futures interest rate of 105% in the last two months. The current indicator of $ 22.6 billion remains just 2% below its all-time high.
While the rise in Bitcoin price may explain part of that surge, it also reflects renewed confidence as long positions worth $ 7.4 billion were liquidated between March 14 and March 24.
To understand how bullish or bearish professional traders are, you need to analyze the base rate of futures. Basis is also often referred to as the futures premium and measures the difference between long-term futures contracts and the current spot market level.
An annualized premium of 10% to 20% (base) is called neutral or contango. This price difference is due to sellers charging more money to keep the sale longer.
On March 13, BTC markets found themselves in an excessive leverage situation as the base rate approached 35%. Being optimistic, especially during a bull market, shouldn’t be viewed as worrying. However, as the price fell 11% from the all-time high of $ 61,800, these extreme leverage buyers’ positions were deleted.
This time the base rate is 29%, which is pretty high, but the number could be adjusted in the next few days. These leveraged buyers could increase their margins or buy BTC on regular spot exchanges in order to later reduce their futures position.
While long positions appear to be overly leveraged, there is currently no evidence of potential market stress that would suggest a negative outcome if the price of BTC falls to $ 53,000. Given that most of the recent surge in open positions occurred in early March, the median long price shouldn’t be much higher.
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