Bitcoin futures traders bet on bullish price action, but not too fast

Bitcoin (BTC) futures trading has been at a high level since July 21, both the Chicago Mercantile Exchange and Bakkt have seen considerable increases in volume and open interest for their contracts.. This resurgence in BTC futures occurs when the spot market value of the largest cryptocurrency by market cap will peak again in 2020.

Two months after the halving event in May 2020, BTC has begun to show signs of the anticipated bullish advance. Bitcoin generally sets a new all-time high in the year after a decrease in the block reward subsidy, and BTC optimists claim the trend will continue.

Amid current positive Bitcoin price action, bullish sentiment appears to be gathering steam in the BTC futures market. Long positions currently outnumber short ones by almost 9 to 1, meaning that any significant pullback to the downside could see a cascade of closeouts on bullish bets, especially for traders with over-leveraged long contracts. In mid-March 2020, the panic in the market caused by the COVID-19 pandemic saw Bitcoin drop to $ 3,800. This drop caused a cascade of forced liquidations, especially on derivatives exchanges like BitMEX.

Bitcoin price reaches a new peak in 2020

The rise in BTC prices comes amid a string of positive news for the crypto space with the U.S. Office of the Comptroller of the Currency allowing national banks to offer crypto custody services. Major economies have also been moving towards stimulus packages to alleviate disruptions caused by the current coronavirus pandemic. EU leaders already they approved a USD 2 trillion spending plan with almost half of the allocated amount destined to support the economies most affected by COVID-19. In the United States, lawmakers have been working on another round of stimulus payments, which could reach USD 3 billion.

With the US Federal Reserve printing more money in a month than in the past 200 years, investors seem to be interested in protecting themselves against the risk of currency degradation. This sentiment appears to be providing significant stern winds for refuge assets like BTC and gold.. Bitcoin’s rise to a new peak in 2020 also coincided with gold setting a new price record per ounce. In fact, the precious metal is close to crossing the $ 2,000 milestone, with silver also at its highest level in more than seven years.

CME BTC Futures Interest Sets New Historical Peak

As Cointelegraph previously reported, Bitcoin futures open interest has been increasing along with observed gains in the spot market. According to data from cryptocurrency derivative analysis platform Skew, CME’s open BTC futures interest is at a record peak of $ 740 million.

CME BTC futures

One week after “Black Thursday”, Bitcoin CME futures open interest (OI) almost fell to its lowest level in three months. However, as the spot price rebounded in the following weeks, so did the open interest in CME’s cash-settled BTC futures contract through mid-May. With the block reward subsidy event not triggering any immediate price gains, the OI fell significantly again. At that time, cryptocurrency derivative retail traders suffered settlements of around $ 1.3 billion, as the price of BTC experienced a pullback of $ 10,000 to the $ 8,600 support level.

It may be interesting to note that, While the LE is on the rise, trading volume has cooled significantly in the last days of July. The same trend can be seen for Bakkt, with open interest at a record peak of $ 22 million, but trading volume has declined downward both in cash and physically settled futures contracts.

In fact, the increasing OI in Bitcoin futures is representative of the trend observed in the field of crypto derivatives as a whole. According to his 2020 second quarter report, the market analysis platform TokenInsight revealed that The market-wide crypto derivatives OI increased from $ 2.62 billion to $ 5.53 billion in the second quarter of 2020. High OI and low volume generally point to more exposure-driven activity than actual trading. Often this scenario indicates that traders are looking to lower the price of Bitcoin.

However, according to data From the chain analytics platform, the ratio of long to short percentages is almost at its highest level in 2020. This trend suggests that traders expect Bitcoin to still have room for more raises.. Joe DiPasquale, the CEO of cryptocurrency hedge fund BitBull Capital, told Cointelegraph that the high OI points to traders expecting an imminent increase in volatility:

“Right now, Bitcoin is at a critical level. If it stays above $ 11,000 for a week or so, we can expect further appreciation. However, it will only be around $ 15K that we can expect real retail FOMO and the possibility of a parabolic breakthrough. “

For Adam Todd, the CEO of cryptocurrency exchange Digitex Futures, the rising OI means that more money is flowing into the Bitcoin futures market. In a conversation with Cointelegraph, Todd stated: “In general, an increase in open interest means that the price will also increase as new money enters the market”. The increase in open interest amid declining volume also points to traders choosing to adopt longer holding periods. With Bitcoin’s price volatility falling to record lows prior to this current surge, short-term funds would no longer be profitable.

The ratio of BTC futures longs to shorts

Trading of cryptocurrency derivatives in numbers: first semester of 2020

The rise in OI for CME and Bakkt is one of many indications of increased institutional activity in Bitcoin and cryptocurrencies in general. Grayscale, the largest cryptocurrency hedge fund, has recently seen its total assets under management exceed $ 5 billion.

In fact, Grayscale’s AUM grew by approximately $ 500 million in just one week to add to the more than $ 1.4 billion increase recorded in the first half of 2020. While the Grayscale Bitcoin Trust remains the overwhelmingly dominant product in the company’s catalog, Litecoin (LTC) shares have grown over the past month., indicating a certain institutional appetite for the seventh largest cryptocurrency by market capitalization. The increase in Litecoin’s share ownership coincided with LTC keeping up with Bitcoin’s price gains, even as other alternative currencies experienced losses. Commenting on the prospects for increased institutional participation in Bitcoin, Todd commented:

I think Bitcoin’s recent breakout, especially at a time when traditional markets are so uncertain, will certainly cause more institutional investors to take a second, third, or even fourth perspective to add BTC to their portfolios.However, institutions are likely to expect a price correction, unlike retail investors, they are not going to pursue a recovery. ”

Open interest (OI) of Bitcoin options are also on the rise

In addition to futures, The OI for Bitcoin options has also seen a similar increase. Of the $ 2.2 billion in total open interest for BTC options, Deribit represents $ 1.79 billion, equivalent to an 80% market dominance. Once again, as is the case in the futures arena, the rising OI for BTC options is happening along with a decrease in trading volume. In addition to dominating the OI of Bitcoin options, Deribit also controls more than 90% of the market’s trading volume, compared to the 60% dominance achieved in the second quarter of 2020.

Skew data show that the put / call ratio, or PCR, of Bitcoin options is starting to steadily increase. A rising PCR generally indicates bullish sentiments, and at 0.63, traders seem to expect further gains for BTC. However, when the CRP begins to approach the 1.0 mark, a contrary interpretation is generally formed for the indicator, as the high CRP values ​​generally anticipate the emergence of bearish sentiments as seen in May prior to the halving event. Before the 2020 halving, Bitcoin’s options PCR increased to 0.81, its highest level in 2020. A few days later, BTC experienced a pullback of $ 10,000 to the $ 8,600 price level.

BTC put / Call ratios

A similar situation occurred the last time the BTC options PCR almost reached 1.0, which was at the end of June 2019. Bitcoin fell in decline during the second half of 2019, ending the year at $ 7,300. If the trend continues, the current upward price action could be interrupted by a significant pullback. According to DiPasquale, such a pullback is to be expected:

Almost all of the fast rises are followed by retracements, which are healthy for market action, as profit taking allows investors / traders to take breaks, and new capital can enter the market as floors are set. . For now, the zone between USD 10,000 and USD 10,500 presents a solid support zone for any pullback. ”

The 106,000 BTC (~ $ 1.2 billion) in Bitcoin futures and options that expired on July 31 could also have some impact on price action in the third quarter of 2020. For Bitcoin options, more than $ 1.4 billion in aggregate open interest is still available to trade in August and September.

With Bitcoin breaking out of its side buildup, crypto derivatives trading could see a resurgence in Q3 2020. According to the TokenInsight report, cryptocurrency derivatives trading surpassed $ 2 trillion for the second consecutive quarter, resulting in “a year-over-year increase of 165.56% from the second quarter of 2019.”

At $ 2.159 trillion in volume, crypto derivatives represented approximately 27.4% of the total cryptocurrency trading market, as reported by TokenInsight. Despite the pause in price action for about half the period, the cryptocurrency derivatives niche still experienced a marginal increase, while spot volume fell 18%.

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