Bitcoin (BTC) has been very volatile in recent weeks, surpassing $ 16,000 for the first time in three years. But the open interest in the futures market indicates that a significant increase in volatility is likely to happen very soon.
The term “open interest rate” refers to the total amount of contracts actively opened in the futures market. If open interest is high, it means that a large number of traders are betting on Bitcoin’s price movement.
Meanwhile, on Nov.13, Bitazu Capital co-founder Mohit Sur indicated that open interest in bitcoin futures is at an all-time high. This means that the possibility of higher volatility in the short term should come as no surprise.
Sarut said the “liquidation festival” has not yet started and he points to Bitcoin’s tendency to see consecutive liquidations after significant price fluctuations. He said:
“Bitcoin futures and persistent open pool contracts have hit a new high today. The liquidation festival has not started yet. ”
Higher open interest rates can lead to more volatility
Bitcoin futures offer up to 125x impact. Dealers can now use from 1x to 125x, depending on the platform.
When the position effect is high, it means that the settlement price is closer to the entry price. For example, if a trader bought 20 bitcoins for $ 16,300. With 20x the impact, a trader can trade $ 200,000 with a $ 10,000 balance.
But the higher the power, the lower the clearance. 20x to $ 16,300, if BTC falls below $ 15,600 the position will be closed.
If the position is settled with a set stop loss, the trade will completely delete the position. Therefore, if a buy position of $ 10,000 (position $ 200,000) is closed 20 times, $ 10,000 is completely lost.
Thus, when Bitcoin looks huge and the open interest in the futures market is high, Bitcoin tends to be highly volatile.
It is not yet clear if this trend will have a positive or negative impact on Bitcoin’s price cycle in the short term. If long-term agreements are shortened, the BTC price falls, and if short-term agreements are terminated, it rises.
On the largest futures exchange, the average bitcoin funding rate is 0.01%. This means that the market is relatively balanced and neither buyers nor sellers dominate it.
The options market is also gaining momentum
Likewise, the rest of the bitcoin derivatives market has seen an increase in trading activity and interest rates opening.
Deribit, the best cryptocurrency option, a skewed chart showing the overall open interest in Bitcoin options, has also hit record levels in recent days.
The timing of the increase in open interest in the options market is remarkable because the theory that open interest in options should peak at the end of the month.
Monthly BTC options expire on the fourth Friday of every month and therefore open interest tends to rise in the last week of every month.
However, as reported by Cointelegraph, the data shows that bulls are underwhelmed by the next $ 525 million options that are about to expire. As long as BTC stays above $ 15,500, it is unlikely that the expiration of the underlying options will have a significant impact on the price.
+ 9 + 36.66