Decoding The $7B Decline in Bitcoin’s Notional Open Interest

Notional
open
interest
in
bitcoin

(BTC)
futures
and
perpetual
futures,
a
crucial
market
sentiment
gauge,
has
declined
roughly
18%
from
$37
billion
to
$30.2
billion
in
one
month,
alongside
a
14%
slide
decline
in
the
cryptocurrency’s
spot
market
price,
according
to
data
source

Coinglass.

At
first
glance,
the
data
indicates
that
longs
or
bullish
leveraged
bets
anticipating
a
price
rise
have
been
squared
off
over
the
past
four
weeks.
In
other
words,
BTC’s
price
drop
is
bolstered
by
the
unwinding
of
bullish
bets.

That
interpretation
could
be
partially
correct
at
best
and
masks
the
bullish
undercurrents
in
the
market.

Open
interest
refers
to
the
number
of
active
or
open
contracts
at
a
given
time,
and
notional
open
interest
is
calculated
by
multiplying
the
number
of
units
in
one
contract
by
its
current
spot
market
price.
Therefore,
changes
in
the
asset
price
impact
notional
open
interest
even
as
the
total
number
of
contracts
remains
steady,
thereby
painting
a
misleading
picture
of
market
activity.

That
seems
to
be
the
case
in
the
BTC
market.

Per
Coinglass,
open
interest
has
remained
steady
above
the
500,000
BTC
mark
over
four
weeks.
Meanwhile,
perpetual
funding
rates
charged
by
exchanges
every
eight
hours
have
consistently
held
positive,
indicating
a
bias
for
bullish
bets.

The
combination
of
steady
open
interest
in
BTC
terms
and
positive
funding
rates,
coupled
with
the
decline
in
notional
open
interest,
suggests
that
some
traders
have
been
setting
fresh
long
positions,
offsetting
other
market
participants’
supposed
unwinding
of
bullish
bets.

That’s
a
sign
traders
are
not
yet
hesitating
to
put
longs,
according
to
Laurent
Kssis,
crypto
ETF
specialist
at
CEC
Capital.

“This
assumption
is
indeed
correct.
Also,
more
protection
strategies
are
being
implemented
as
the
market
remains
very
uncertain.
Don’t
forget
the
lat
liquidity
washouts
were
decent
enough
to
push
the
market
down
below
the
$60K
mark.
Hesitation
to
position
long
orders
is
still
not
dominating,
but
hedging
is
a
rather
large
part
of
the
trading.”

Perhaps
traders
are
hopeful
that
once
the
selling
pressure
from
Mt.
Gox
reimbursements
and
miners
is
exhausted,
bitcoin
could
resume
the
upward
trend,
keeping
pace
with
the
Nasdaq.

A
similar
conclusion
can
be
drawn
from
the
consistent
positive
spread
between
futures
and
spot
prices,
widely
referred
to
as
basis.

“The
basis
has
dipped
slightly
but
is
still
attractive,
so
there
is
still
demand
for
long
positions
as
part
of
the

basis
trade,
and
expectations
of
a
breakout
are
building
as
macro
tailwinds
accumulate
and
as
the
selling
pressure
is
likely
to
dissipate
soon,
so
investors
could
be
accumulating
strategic
longs
while
funding
rates
are
low,”
Noelle
Acheson,
author
of
the
Crypto
Is
Macro
Now
newsletter
told
CoinDesk.

Activity
in
the
spot
and
options
market
also
suggests
upside
bias.

According
to
Griffin
Ardern,
head
of
options
trading
and
research
at
crypto
financial
platform
BloFin,
crypto
exchange
Bitfinex
has
been
the
source
of
bullish
pressure
during
the
price
dip.

“Bitfinex
whales
have
been
buying
the
dips
[in
the
spot]
since
late
June,
but
I
haven’t
observed
similar
signals
in
the
other
derivatives
market,”
Ardern
told
CoinDesk.

The
margin
longs
on
Bitfinex,
which
involve
using
borrowed
funds
to
buy
an
asset
in
the
spot
market,
have
steadily
increased
since
June.

Meanwhile,
according
to
QCP
Capital,
traders
have
been
buying
topside
bets
in
the
options
market.

“Despite
the
sell-off,
the
options
market
is
still
heavily
skewed
in
favor
of
the
topside,
suggesting
that
the
market
is
still
anticipating
a
year-end
rally.
This
aligns
with
the
desk’s
observation
of
significant
buying
interest
in
the
longer-term
options
at
the
$100K/$120
strike
[calls],”
QCP
said
in
a
market
update
on
Wednesday.