Trading in Bitcoin (BTC) futures has been at a high level since July 21. Both the Chicago Mercantile Exchange and Bakkt saw significant volume increases and open positions for their contracts.. This BTC futures revival occurs when the spot market value of the largest cryptocurrency by market cap will reach a new high in 2020.
Two months after halving in May 2020 BTC shows the first signs of the expected upward trend. Bitcoin is generally hitting a new all-year high after a decline in block reward subsidy, and BTC optimists say the trend will continue.
In the midst of the currently positive Bitcoin price development, the bullish mood on the BTC futures market seems to be picking up speed. Long positions currently outnumber short positions by almost 9 to 1This means that any significant downtrend could result in a cascade of bullish settlement, especially for traders with long leveraged contracts. In mid-March 2020, Bitcoin dropped to $ 3,800 due to the market’s panic caused by the COVID-19 pandemic. This decline led to a cascade of forced liquidations, especially on futures exchanges such as BitMEX.
The Bitcoin price will reach a new high in 2020
The rise in BTC prices is due to a series of positive news for the crypto space. The United States Currency Exchange Office enables national banks to offer crypto custody services. Major economies have also focused on stimulus packages to alleviate disruptions caused by the current coronavirus pandemic. EU leaders have already approved a $ 2 trillion spending plan that earmarks almost half of the amount allocated to support the economies most affected by COVID-19. In the United States, lawmakers have been working on another round of stimulus payments that could reach $ 3 trillion.
With the U.S. Federal Reserve printing more money in a month than in the past 200 years, investors seem to be interested in protecting themselves from the risk of currency deterioration. This sentiment appears to be generating significant severe winds for assets like BTC and gold.. Bitcoin’s rise to a new high in 2020 also coincided with gold setting a new price record per ounce. In fact, the precious metal is nearing the $ 2,000 milestone, with silver also reaching its highest level in more than seven years.
CME BTC Futures Interest sets new historical high point
As Cointelegraph previously reported, The open interest for bitcoin futures has increased along with the observed gains on the spot market. According to the analysis platform for cryptocurrency derivatives Skew, CME’s open BTC futures interest is at a record high of $ 740 million.
A week after “Black Thursday”, the open interest (OI) of Bitcoin CME futures fell almost to the lowest level in three months. With the recovery of the spot rate in the following weeks, however, the open interest in CME’s BTC futures contract with cash settlement rose until mid-May. With the block reward subsidy event not triggering immediate price gains, the OI fell significantly again. At this point, retailers of cryptocurrency derivatives had to accept around $ 1.3 billion in bills as the price of BTC fell by $ 10,000 to the support level of $ 8,600.
It may be interesting to note that While the LE is on the advance, the trading volume has cooled significantly in the last days of July. The same trend can be seen at Bakkt, with open positions at a record high of $ 22 million, but trading volumes have been reduced for both cash and physically settled futures.
In fact, the rising OI in Bitcoin futures is representative of the trend that is observed in the area of crypto derivatives as a whole. According to its report for the second quarter of 2020, the market analysis platform TokenInsight has revealed this The market-wide crypto derivative OI rose from $ 2.62 billion to $ 5.53 billion in the second quarter of 2020. High OI and low volume generally indicate more exposure-related activity than actual trading. Often, this scenario suggests that traders are trying to lower the price of Bitcoin.
However, according to the online analysis platform Datamish.com, the ratio of long to short percentages is almost at its highest in 2020. This trend suggests that traders expect Bitcoin to have room for further increases.. Joe DiPasquale, CEO of Cryptocurrency Hedge Fund BitBull Capital, told Cointelegraph that the high OI is pointing to traders who anticipate an impending increase in volatility:
“Bitcoin is currently at a critical level. If it stays above $ 11,000 for a week or so, we can expect further appreciation. However, it will only be around $ 15,000 with which we can expect real FOMO for retail and the possibility of a parabolic breakthrough. “
For Adam Todd, the CEO of Cryptocurrency Exchange Digitex Futures, the rising OI means that more money is flowing into the Bitcoin futures market. In an interview with Cointelegraph, Todd explained: “In general, an increase in open positions means that the price rises when new money comes on the market.”. The increase in open interest with falling volume also suggests that traders choose longer holding periods. With bitcoin price volatility dropping to record lows before this current surge, short-term funds would no longer be profitable.
Trading cryptocurrency derivatives in numbers: first semester 2020
The rise in OI for CME and Bakkt is one of many signs of increased institutional activity in Bitcoin and cryptocurrencies in general. Grayscale, the largest cryptocurrency hedge fund, recently had total assets under management of more than $ 5 billion.
In fact, Grayscale’s AUM grew by around $ 500 million in just one week, contributing to the increase of more than $ 1.4 billion in the first half of 2020. While the Grayscale Bitcoin Trust remains the predominant product in the company’s catalog, Litecoin (LTC) stocks have grown in the past month.This shows a certain institutional appetite for the seventh largest cryptocurrency by market cap. The increase in Litecoin’s holdings coincided with LTC keeping pace with Bitcoin’s gains, even though other alternative currencies posted losses. Todd commented the prospects for increased institutional participation in Bitcoin as follows:
“”I think the recent Bitcoin outbreak, especially at a time when traditional markets are so uncertain, will surely lead to more institutional investors taking a second, third, or even fourth perspective to include BTC in their portfolios.However, the institutes are likely to expect a price correction, unlike retail investors, they will not seek a recovery. “
The open interest (OI) of Bitcoin options is also increasing
In addition to futures The OI for Bitcoin options has also seen a similar increase. Of the total USD 2.2 billion open positions in BTC options, Deribit is USD 1.79 billion, which is 80% dominance. As in the futures arena, the rising OI for BTC options is associated with a decline in trading volume. Deribit not only dominates the OI of Bitcoin options, but also controls over 90% of the market’s trading volume, compared to the 60% dominance achieved in the second quarter of 2020.
The offset data show that the put / call ratio (PCR) of Bitcoin options is increasing steadily. Rising PCR generally indicates bullish sentiment, and traders seem to expect further gains for BTC at 0.63. However, when the CRP approaches the 1.0 mark, an opposite interpretation is generally made for the indicator, as the high CRP values generally anticipate the appearance of bearish feelings as seen in May before the halving event. Before halving in 2020, Bitcoin’s option PCR rose to 0.81, its highest level in 2020. A few days later, BTC saw a drop from $ 10,000 to the price level of $ 8,600.
A similar situation occurred when the BTC option PCR last reached almost 1.0, which was the end of June 2019. Bitcoin declined in the second half of 2019, ending the year at $ 7,300. If the trend continues, the current upward price movement could be interrupted by a significant decline. Such a withdrawal is expected according to DiPasquale:
Almost all rapid increases are followed by retracements that are suitable for market campaigns, since investors / traders can take breaks through profit-taking and new capital can enter the market if the minimum wage rates are set. . Currently, the $ 10,000 to $ 10,500 zone provides a solid support zone for any retreat. “
The 106,000 BTC (~ $ 1.2 billion) in Bitcoin futures and options expired on July 31 could also impact price developments in the third quarter of 2020. For Bitcoin options In August and September, more than $ 1.4 billion in open positions were still available for trading.
With the outbreak of Bitcoin, trading in crypto derivatives could revive in the third quarter of 2020. According to the TokenInsight report, trading in cryptocurrency derivatives exceeded $ 2 trillion for the second consecutive quarter, which means “an increase of 165.56% over the previous year compared to the second quarter of 2019.
TokenInsight said crypto derivatives with a volume of $ 2.159 trillion accounted for approximately 27.4% of the total cryptocurrency market. Despite the pause in the price movement for about half of the period, the niche of cryptocurrency derivatives still rose slightly, while spot volume declined by 18%.