Bitcoin

Data shows that Bitcoin’s price typically falls within a few days when open interest in BTC futures reaches $ 1 billion

There was a time when Crypto derivatives exchange BitMEX ruled sovereignly over other exchanges, and the company had a 50% market share in July 2019. Because of this, traders were aware of all of the BitMEX related indicators, their funding rate, their outstanding interest rates and their base.

Open Interest measures the total number of contracts that market participants have. As the number increases, so does the potential size of the liquidations. August 2nd A decrease of $ 1,400 occurred when futures contracts worth $ 1 billion were forcibly liquidated due to insufficient margins.

Though there is no magic number Traders tend to freak out when the open interest approaches $ 1 billion, triggering a phenomenon some traders refer to as the BitMEX ghost. This became evident in the second half of 2019, when there were massive price cuts in Bitcoin seven times when the open interest hit $ 1 billion.

Data shows that Bitcoin’s price typically falls within a few days when open interest in BTC futures reaches $ 1 billion
Data shows that Bitcoin’s price typically falls within a few days when open interest in BTC futures reaches $ 1 billion

The perceived risk associated with high open interest depends on the liquidity of the underlying asset. In the third quarter of 2019, the average Bitcoin volume on spot exchanges was $ 2.4 billion per day. Hence, a single contract for 42% of the Bitcoin volume seemed important enough.

Bitcoin price against open interest for perpetual BitMex contracts (in USD). Source: TradingView

As we can see in the graphic above, there is no doubt about it Open interest near $ 1 billion coincided with price declines from July through September. It should be noted that a significant number of contracts cannot be considered bullish or bearish.

The second half of 2019 was mostly bearish

The second half of 2019 was quite difficult for cryptocurrencies, and as most investors will remember, it was President Trump publicly charged against Bitcoin, as Cointelegraph reported. All of this happened during the United States Treasury SecretarySteven Mnuchin called for more regulation and oversight for the sector.

Open interest in aggregated Bitcoin futures in November 2019 (in USD). Source: Skew

The graphic above shows in much more detail how relevant BitMEX’s 40% market share was back then. A single exchange had open positions equal to half of Bitcoin’s daily spot volume.

Fast forward to 2020, BitMEX has been dethroned from OKEx, where total open interest in perpetual and fixed income futures topped $ 1 billion on July 25th.

Open interest in aggregated Bitcoin futures (in USD). Source: Skew

The rest of the competitors continued to increase their participation, but only recently did the Chicago Mercantile Exchange (CME), Binance and Bybit break through the $ 1 billion psychological barrier.

Today’s market is slightly similar to 2019, but with less risk

Oddly enough It did so on November 20th, just four days before the 16% fell to $ 16,334. Total open positions in the futures as of September 2019 were $ 3 billion to put things in perspective. On that occasion, four exchanges broke the $ 1 billion barrier.

Although Open interest in futures rose to $ 7.4 billion, as did the average daily volume on local (regular) exchanges, which is now $ 3.5 billion. Unlike last year, a single exchange with an open interest of $ 1 billion shouldn’t surprise us as much as 2019.

In summary, The markets have grown and gone so far that the spirit of BitMEX has gone. However, it could have been replaced by a similar phenomenon that occurs when four exchanges cross the $ 1 billion mark for open positions in futures.

In any case, we should look out for such an indicator from now on, as these four exchanges have replaced BitMEX as the market leader. Combined, Binance, CME, OKEx and Bybit account for more than half of the open interest in futures. While such a coincidence has only happened once, it actually mimics the $ 1 billion effect of the past.

The views and opinions expressed here are solely those of darer and do not necessarily reflect the views of Cointelegraph. Every investment and business move is associated with risks. You must do your own research when making a decision.

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