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

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

Open curiosity measures the whole variety of contracts held by market individuals. Because the determine rises larger, so does the potential measurement of liquidations. On Aug. 2, a $1,400 crash happened as $1 billion in futures contracts have been forcefully closed resulting from inadequate margins.

Though there isn’t any magic quantity, merchants are inclined to get shaky as open curiosity nears $1 billion, inflicting a phenomenon some merchants consult with because the BitMEX ghost. This turned evident throughout the second half of 2019, when huge Bitcoin worth crashes occurred on seven totally different cases when open curiosity tops $1 billion.

The perceived threat related to excessive open curiosity relies on how liquid the underlying asset is. Throughout the third quarter of 2019, Bitcoin’s common quantity on spot exchanges averaged $2.four billion per day. Thus, a single contract totaling 42% of the Bitcoin quantity appeared sizeable sufficient.

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

Because the chart above depicts, there may be little doubt that open curiosity close to $1 billion coincided with related worth crashes from July via 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 largely bearish

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

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

The chart above exhibits a lot better element of how related BitMEX’s 40% market share was again then. A single trade 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 whole 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, but it surely was solely just lately that Chicago Mercantile Change (CME), Binance, and Bybit managed to interrupt the psychological $1 billion barrier.

Right this moment’s market marginally resembles 2019, however with much less threat

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 $Three billion to place issues in perspective. This time round, 4 exchanges have been capable of break the $1 billion barrier.

Though futures open interest 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 12 months, a single trade holding a $1 billion open curiosity mustn’t increase 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 but it surely may need been changed by an analogous phenomenon that happens when 4 exchanges cross the $1 billion futures open curiosity mark.

Regardless, one ought to preserve 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 here are solely these of the author and don’t essentially replicate the views of Cointelegraph. Each funding and buying and selling transfer includes threat. You must conduct your individual analysis when making a choice.