Bitcoin Futures Traders Bet on Bullish Price Action, but Not Too Fast

clicks | 9 days ago | comments: discuss | tags: cryptocurrency bitcoin

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Bitcoin futures open interest is currently at an all-time high as traders expect more upside for BTC’s spot price. Bitcoin ( BTC ) futures trading has been on a high since July 21 with both the Chicago Mercantile Exchange and Bakkt seeing sizeable increases in volume and open interest for their contracts. This resurgence in BTC futures comes as the spot market value of the largest crypto by market capitalization reached a new 2020 high. Two months on from the May 2020 halving event, BTC has begun to show signs of the anticipated bullish advance. Bitcoin usually sets a new all-time high in the year following a block reward subsidy decrease, with BTC optimists stating the trend will continue. Amid the current positive price action for Bitcoin, bullish sentiment appears to be gathering steam in the BTC futures market. Long positions currently outnumber shorts by almost 9-to-1, which means that any significant downward retracement could see a cascade of liquidations on optimistic bets, especially for traders with overleveraged longs. Back in mid-March 2020, the market panic caused by the COVID-19 pandemic saw Bitcoin fall to $3,800. This drop caused a cascade of forced liquidations, especially on derivatives exchanges like BitMEX. Bitcoin’s price reaches new 2020 high The price surge for BTC comes amid a raft of positive news for the crypto space with theUnited States Office of the Comptroller of the Currency allowing national banks to offer cryptocurrency custody services . Major economies have also been moving toward stimulus packages to alleviate the disruptions occasioned by the ongoing coronavirus pandemic. EU leaders have already approved a $2-trillion spending plan with almost half of the earmarked sum geared to support economies hardest-hit by COVID-19. In the U.S., lawmakers have been working on another round of stimulus payments, which could go as high as $3 trillion . With the U.S. Federal Reserve printing more money in one month than in the last 200 years , investors appear to be keen on hedging against the attendant risk of currency debasement. This sentiment appears to be providing significant tailwinds for haven assets like BTC and gold. Bitcoin’s rise to a new 2020 high also coincided with gold setting a new price record per ounce. Indeed, the precious metal is close to crossing the $2,000 landmark, with silver also at its highest level in over seven years. CME BTC futures interest sets new all-time high As previously reported by Cointelegraph, Bitcoin futures open interest has been on the rise in tandem with the gains seen in the spot market. According to data from crypto derivatives analytics platform Skew, CME BTC futures open interest is at an all-time high of $740M. A week after “Black Thursday,” CME Bitcoin futures open interest almost fell to their lowest level in three months. However, as spot price recovered in the weeks that followed, so too did the open interest in CME’s cash-settled BTC futures contract until the May halving. With the block reward subsidy event not triggering any immediate price gains, OI took a significant dip once again. At the time, retail crypto derivatives traders suffered liquidations to the tune of about $1.3 billion, as the BTC price saw a retrace from $10,000 to the $8,600 support level. It is perhaps interesting to note that while OI is on the rise, trading volume has cooled off significantly over the last few days of July. The same trend can be observed for Bakkt , with open interest at an all-time high of $22 million, but trading volume has been on a downward slide for both its cash and physically settled futures contracts. Indeed, the rising OI in Bitcoin futures is representative of the trend seen in the crypto derivatives arena as a whole. According to its Q2 2020 report , market analytics platform TokenInsight revealed that marketwide cryptocurrency derivatives OI rose from $2.62 billion to $5.53 billion in the second quarter of 2020. Typically, high OI and low volume point toward more exposure-driven activity than actual trading. Often, this scenario indicates that traders are looking to short Bitcoin’s price. However, according to data from on-chain analytics platform, the ratio of percent longs to short is almost at its highest level in 2020. This trend suggests that traders expect that Bitcoin still has room for more upside. Joe DiPasquale, the CEO of crypto hedge fund BitBull Capital, told Cointelegraph that the high OI points toward traders expecting an impending uptick in volatility: “At this time, Bitcoin is at a critical level. If it holds above $11,000 for a week or so, we can expect further appreciation. However, it will only be around $15K that we can expect actual retail FOMO and the possibility of a parabolic advance.” For Adam Todd, the CEO of crypto derivatives exchange Digitex Futures, the rising OI means more money flowing into the Bitcoin futures market. In a conversation with Cointelegraph, Todd stated: “Generally, a r...