Wednesday, September 28

Bitcoin futures open interest at 3-month highs, but will it be enough to break above $ 50K?

Bitcoin (BTC) futures open interest has rebounded to levels in May, raising optimism about a powerful bullish breakout move above $ 50,000.

The total number of futures contracts outstanding on the Deribit exchange reached $ 1.37 billion on August 23, its highest level since May 27. Meanwhile, the difference between Bitcoin’s spot rate and its futures contract price widened, increasing its three-month (annualized) base to June levels, data provided by Stack Funds shows.

Bitcoin OI futures and 3-month basis. Source: Stack Funds

The investment management firm saw the recovery as a sign that investors are reentering the Bitcoin market while taking a “higher risk approach.” According to its head of research, Lennard Neo, the “contango trading” of Bitcoin futures reflected that “investor sentiments remain skewed towards optimism.” He wrote in a report:

“More importantly, we have seen a steady strength in the momentum of offers versus offers, leading us to believe that markets will be well supported at least in the short term, with further consolidation before breaking above $ 50,000. “.

Influence of retail on the price of Bitcoin

In June, Bitcoin futures collapsed under the weight of a brutal sell-off in the world’s largest cryptocurrency spot market. The move down from $ 41,322 to $ 28,800 eliminated the base trade, in which a trader buys Bitcoin on the spot market and sells long-term futures to block the disparity between the two prices.

It appears that leveraged futures traders were undoing their long positions to meet margin calls, that is, through automatic settlement mechanisms on exchanges. That narrowed the gap between spot and Bitcoin futures prices, sparking fears of a negative premium on futures contracts, also called backwardation.

In Deribit, the quarterly base (annualized) was around 2.5%. But in ideal “contango” circumstances, futures should trade at an annualized premium of 5% to 15% in accordance with the stablecoin loan rate.

Cointelegraph reported that the June crash had less to do with a lengthy sell-off and more to do with the capitulation of the miners. He cited China’s crackdown on regional crypto companies around the same time that Bitcoin prices plummeted, noting that the decision forced cryptocurrency miners to shut down their operations abruptly and, in turn, sell their Bitcoin holdings. en masse to cover losses.

Bitcoin spot rates fell more than 30% in just seven days in June 2021. Source:

$ 50K a psychological barrier

Going into August, Bitcoin has put most mining concerns aside, with a recent report from Glassnode stating that miners have started hoarding tokens. Meanwhile, reports of persistently high inflation in the US have also fueled the Bitcoin safe-haven narrative among accredited investors.

Related: Bitcoin Is Set To Replace Gold, Says Bloomberg Strategist On Bretton Woods 50th Anniversary

That partially explains why Bitcoin bottomed out near $ 29,000 and rose again to $ 50,000 in over a month. It also underscores the rise in open futures interest and bases trading, indicating renewed buying interest among investors and traders alike.

But Neo saw a potential flaw. The researcher highlighted Bitcoin’s recent failure to close above its $ 50,000 psychological resistance, noting that it could slow its impending rally. He added:

The fact that the 3-month base has not exceeded June levels and is still well below April levels suggests that real demand and speculation remain conservative.

Bitcoin was trading at $ 46,888, roughly 7.78% below its session high of $ 50,505, at the time of writing.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Every investment and business move involves risk, you should do your own research when making a decision.