Growth in Bitcoin Speculation Interest Could Be Negative Signal
Open interest in bitcoin perpetual swaps, a type of leveraged trading contract on cryptocurrency markets, has reached an all-time high.
The bitcoin perpetual swap, which is a key speculative tool on cryptocurrency markets, has reached a new trading high.
According to data from Arcane Research, open interest in the “perps,” as they are called, has reached an all-time high of 450,000 BTC. In crypto markets, perpetual swaps are a new idea that give speculative traders leverage. They are similar to futures contracts in traditional markets, but they don’t end.
One thing that bitcoin bulls should keep in mind is that, at least in the current market, the data point might be more of a reason to worry than to cheer.
Since the Terra blockchain crashed in May, the open interest, or OI, which is the total amount of trading contracts that are still open, has been going straight up. In a report, Arcane Research said that the number of longs and shorts in BTC perps is always the same.
Rates of Bitcoin funding
In Arcane’s report, there was a chart showing that the “funding rates” for bitcoin perpetual contracts, which are what traders pay for leverage, were negative for most of September. This means that speculative bearish traders were buying more contracts than bulls. But, as the chart shows, the funding rate has recently started to go up. Arcane mentioned the funding rates on the Binance and Bybit cryptocurrency exchanges.
“The latest push, topped with neutral funding rates on Binance, suggests that bulls’ short-term optimism contributed to the recent spike,” the Arcane analysts wrote. “Keep an eye out for when BTC moves out of its trading range. As this open interest gets unblocked, any change in direction is likely to be exaggerated.
The report says that the open interest in perpetuals measured in BTC has grown by more than 60,000 BTC across all platforms since Oct. 1.
Florian Giovannacci, head of trading at Covario, a prime brokerage for digital assets, said, “This shows that investors are taking a stronger position and are more interested.” Giovannacci pointed out that this isn’t a sign of bullish or bearish positioning, and that bitcoin basis levels are a better sign of that.
The difference between the future contract price and the spot price is the basis level.
According to data from the crypto options exchange Deribit, Bitcoin’s annualised basis for December expiry is currently around 0.3%.
“Bitcoin basis levels are still pretty flat, so it’s hard to tell where things are going if the basis doesn’t change,” he said.
Giovannacci said, “The option market is more telling, with a more bullish stance shown by a higher demand for upside strikes and a skew (the difference between the implied volatility of downside puts and upside calls) that is under pressure.”
