Document $ 7.9B Bitcoin Futures Open Curiosity Exhibits Bears Are Watching BTC Value
Bitcoin (BTC) price passed the $ 20,000 level today, setting a record of $ 7.9 billion in open dates for futures.
Although the price is up 74% in the past two months, accumulated short seller liquidations totaled $ 4.3 billion, which is less than the $ 4.8 billion from longs.
BTC futures aggregate open positions. Source: Bybt.com
As shown in the graph above, the open positions in the futures have increased by 90% in the past two months. This signals that investors are increasing their positions, which in turn allows even larger players to participate.
It's also worth noting that the Chicago Mercantile Exchange (CME) now holds over $ 1.3 billion of those contracts, indisputable evidence of growing institutional involvement in the BTC markets.
By looking at daily liquidations, investors can better appreciate how traders have used leverage. Unexpected price swings tend to result in higher liquidations than current trends, such as the recent Bitcoin breakout to $ 20,800.
BTC futures aggregate the daily liquidations. Source: Coinalyze.net
Note that the largest candle represents longs whose positions were forcibly terminated on November 26th as the BTC price fell 14.4% in 12 hours. Today's resistance of $ 20,000 resulted in short positions worth $ 365 million being liquidated. However, that still doesn't match the previous month's downward move of $ 902 million.
The volume could not keep up with the new BTC price high
The recent downward trend in volume is another reason for bears to celebrate. Bitcoin's total unadjusted trading volume has declined 40% in the past three weeks.
Daily total volume of cryptocurrencies, USD. Source: TradingView
The daily average trading volume of Bitcoin on spot exchanges reached $ 45 billion in late November and has since dropped to $ 25 billion. While there is a chance that the exchanges may have inflated their volume, some bearish maneuvers could also be at play.
Still, Coinbase's BTC / USD and Binance BTC / USDT markets saw a similar drop of 40%. Hence, bears might hope that such volume weakness indicates a lack of confidence in $ 20,000 which is turning into a support level.
Perpetual futures reflect excessive leverage
Perpetual contracts, also known as inverse swaps, typically charge an embedded interest rate every eight hours. Although the open interests of buyers and sellers are the same at all times, their leverage can vary.
When buyers (longs) demand more leverage, the financing rate becomes positive. Hence, the buyers are the ones who pay the fees.
BTC Perpetual Futures Funding Rates. Source: Digital Assets Data
Sustained funding rates of over 4% per week lead to extreme optimism. This level is acceptable in market rallies but problematic when BTC price is sideways. High carry costs could force longs (buyers) to reduce their positions, increasing selling pressure.
In such situations, buyers gain leverage due to the increased risk of large liquidations in the event of surprise price drops.
For example, bears could hold their cards close to their chests and wait for the best moment to test the market.
It is possible for this to happen either closer to the expiration of futures and options on December 25th or on weekends when the order books are typically thinner.
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