As a seasoned crypto investor with a decade-long journey through the digital asset landscape, I find myself both enthused and cautious regarding the recent surge of Bitcoin (BTC). The 8% gain between Oct. 14 and Oct. 15, coupled with the 11.5% increase over the past 30 days, is certainly noteworthy. However, I’m mindful that Bitcoin’s performance often defies traditional market norms, much like a rollercoaster ride at Cedar Point without a seatbelt!
Bitcoin (BTC) price gained 8% between Oct. 14 and Oct. 15 the asset is up by 11.5% over the past 30 days. Bitcoin currently is significantly outperforming the S&P 500, which gained 3.8% during the same period.
As an analyst, I’ve been observing a significant surge in demand for Bitcoin leverage, which has raised concerns about potential risks.
Demand for Bitcoin futures has jumped to highest level since 2023
The overall Bitcoin futures commitment, representing the sum of all BTC futures agreements, points towards a growing demand for borrowing funds, causing concern among some investors. An elevated level of open interest might amplify the possibility of mass liquidations triggered by sudden price fluctuations, prompting traders to expect heightened market volatility.
Traders tend to react with a delay when it comes to increased volatility, as they prefer to see substantial price fluctuations over several days before making new investments. Such a slow response could account for the higher usage of leverage, since traders may feel more assured about entering trades after witnessing notable market activity.
The data indicates that as of October 15, 20XX (assuming January 2023 is the base year), the number of Bitcoin futures contracts hit an all-time high since then, reaching 566,270. In monetary terms, the current value of these contracts stands at approximately $38 billion, which is only 2.5% lower than its peak on March 28, 20XX. This underscores a significant rise in interest for using Bitcoin derivatives to gain leverage, as demonstrated by the data.
Given its solid track record of performance, it’s not surprising that Bitcoin investors have boosted their holdings via derivatives agreements. Moreover, the notable $810 million in net inflows into US-listed Bitcoin spot exchange-traded funds (ETFs) from October 11 to October 14 has added to the optimistic outlook, indicating a rise in institutional investment.
In this scenario, investors frequently interpret an increase in demand for Bitcoin futures as a sign of rising optimism. Yet, it’s essential to keep in mind that every derivatives contract involves both purchasers and vendors. To discern whether the recent trend is driven by leverage from long (buy) positions or short (sell) positions, it’s vital to examine the Bitcoin futures premium, as this can provide insights into market sentiment.
As an analyst, I often observe that the extended settlement period of monthly Bitcoin futures contracts comes at a cost. Usually, traders who engage in these contracts demand a premium ranging from 5% to 10% on an annualized basis, as a fair compensation for the time value they are extending to the counterparty due to the delay in settlement.
On October 15th at the break of dawn, the premium for Bitcoin futures climbed up to 10%, coinciding with the price jumping to $67,885. However, this indicator didn’t manage to go beyond the level suggesting a bullish trend. In simpler terms, while there was an increase in demand from those holding long positions, the overall market situation for Bitcoin remains neutral, as both bulls and bears hold significant influence.
It’s important to note that this data doesn’t disprove the idea that traders on both sides might be using high levels of leverage, which could lead to liquidations. Nevertheless, considering Bitcoin’s price change of 8.6% on October 15th and the fact that derivatives exchanges only forced liquidation of around $70 million in Bitcoin futures positions, it implies that traders are generally being cautious with their use of leverage.
Consequently, it’s quite unlikely that we’ll see a rapid chain reaction of liquidations in the near future, even though there’s been an uptick in Bitcoin futures contracts being held open.
This piece is meant to provide you with a broad understanding, but it’s important to note that it doesn’t serve as legal or financial advice. The perspectives shared within this article belong solely to the author and may not align with those held by CryptoMoon.
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2024-10-15 23:18