Data shows Bitcoin price drops days after BTC futures open interest hits $1B

There was a time when BitMEX derivatives change reigned sovereign over different exchanges, and the corporate successfully held a 50% market share till July 2019. Because of this, merchants saved an in depth eye on each indicator linked to BitMEX, together with its funding price, open curiosity, and foundation.

Open curiosity measures the entire variety of contracts held by market individuals. Because the determine rises greater, so does the potential measurement of liquidations. On Aug. 2, a $1,400 crash occurred as $1 billion in futures contracts had been forcefully closed attributable to inadequate margins.

Though there is no such thing as a magic quantity, merchants are inclined to get shaky as open curiosity nears $1 billion, inflicting a phenomenon some merchants check with because the BitMEX ghost. This turned evident in the course of the second half of 2019, when huge Bitcoin value crashes occurred on seven totally different cases when open curiosity tops $1 billion.

The perceived danger related to excessive open curiosity will depend on how liquid the underlying asset is. Through the third quarter of 2019, Bitcoin’s common quantity on spot exchanges averaged $2.4 billion per day. Thus, a single contract totaling 42% of the Bitcoin quantity appeared sizeable sufficient.

Bitcoin value vs. BitMEX perpetual open curiosity, USD. Supply: TradingView

Because the chart above depicts, there’s little doubt that open curiosity close to $1 billion coincided with related value crashes from July by way of September. It’s value noting {that a} notable variety of contracts in play can’t be deemed bullish or bearish.

The second half of 2019 was principally bearish

The latter half of 2019 was fairly tough for cryptocurrencies, and as most traders will recall, even President Trump publicly bashed Bitcoin, as reported by Cointelegraph. All this occurred whereas the USA Treasury Secretary Steven Mnuchin demanded extra regulation and oversight for the sector.

Mixture Bitcoin futures open curiosity on Nov. 2019, USD. Supply: Skew

The chart above reveals significantly better element of how related BitMEX’s 40% market share was again then. A single change held an open curiosity equal to half of Bitcoin’s each day spot quantity.

Quick ahead to 2020, and BitMEX has been dethroned by OKEx, the place the entire open curiosity on perpetual and fixed-month futures surpassed $1 billion on July 25.

Mixture Bitcoin futures open curiosity, USD. Supply: Skew

The remaining contenders saved rising their share, however it was solely just lately that Chicago Mercantile Trade (CME), Binance, and Bybit managed to interrupt the psychological $1 billion barrier.

In the present day’s market marginally resembles 2019, however with much less danger

Oddly sufficient, this occurred on Nov. 20, simply 4 days forward of the 16% crash to $16,334. The whole futures open curiosity on Sept. 2019 totaled $3 billion to place issues in perspective. This time round, 4 exchanges had been capable of break the $1 billion barrier.

Though futures open curiosity grew to $7.4 billion, so did the each day common quantity on common spot exchanges the place the determine now reads $3.5 billion. Thus, not like the earlier yr, a single change holding a $1 billion open curiosity shouldn’t elevate eyebrows in the identical method that it did in 2019. 

To sum up, the markets have grown and developed to the extent that the BitMEX ghost is gone however it might need been changed by the same phenomenon that happens when 4 exchanges cross the $1 billion futures open curiosity mark.

Regardless, one ought to hold an in depth eye on such an indicator to any extent further as these 4 exchanges have changed BitMEX because the market chief. Mixed, Binance, CME, OKEx, and Bybit maintain over half of the futures’ open curiosity. Though such a coincidence has solely occurred as soon as, it certainly mimics the $1 billion impact from the previous.

The views and opinions expressed listed below are solely these of the author and don’t essentially replicate the views of Cointelegraph. Each funding and buying and selling transfer entails danger. It is best to conduct your personal analysis when making a choice.