The following is taken from a recent edition of Deep Dive, Bitcoin Magazine’s high-end market newsletter. To be among the first to receive this and other on-chain bitcoin market analysis straight to your inbox, Subscribe now.
The overall rise in open bitcoin futures interest is slightly lower than historic levels reached at the top of the local bitcoin market in April. Is this worrying?
While open interest futures and leveraged bets favoring the long side have certainly increased in recent weeks with bitcoin’s feverish rally beyond previous all-time highs, there are a few key distinctions between the structure. market in April and what we see now.
The biggest and perhaps the biggest difference between the derivatives market in April and today is the percentage of open interest futures that uses BTC as collateral to enter a position. With bitcoin derivatives markets, you can either use BTC or stablecoins as collateral.
If you are long (bet directionally on prices to rise) using bitcoin, then if the price decreases your P&L position (profit and loss) and your collateral value decreases in tandem, it increases the liquidation price of your position. . This can lead to mass market sellouts, similar to what happened in May after the April highs.
Thus, it is very important that the percentage of open interests using BTC as collateral has significantly decreased since April, from a high of 70.17% to 45.04%. This is a trend we’ve been covering in detail since July, when we broke some of those dynamics into The Daily Dive # 028 – Structural Changes in the BTC Derivatives Market.