Rise in Bitcoin Derivatives Tempered by Bullish Market Indicators Despite Price Dip
Summary:
Bitcoin (BTC) has seen a 4% drop over two days, now hovering around $67,500. Despite this, investors remain optimistic due to the reliable $66,000 support level. A note of concern has been raised in the Bitcoin derivatives sector due to the increase of open interest to a 16-month high. However, the overall market indicators suggest a healthy state, with Bitcoin's resilience amidst easing US regulatory pressures, potential for more leverage, and a robust stock market reassuring investors. The article advises against interpretation as legal or investment counsel.
Bitcoin (BTC), the premier cryptocurrency, encountered a slump in its value, dipping 4% over two days to approximately $67,500 after peaking at $70,300 on May 27. Yet, the bullish investors are not unduly worried, thanks to the consistent support at $66,000 since May 17. However, concerns are emanating from the Bitcoin derivatives sector as the volume of Bitcoin leverage bets, or open interest, has recently hit a peak since January 2023.
Macro-trends are influencing BTC with the S&P 500 index, hinting at a sturdy stock market, being only 1.2% away from its ever highest of 5,342, registered on May 23. A rise in the 5-year treasury yield from 4.34% to 4.63% also indicates a shift from fixed-income positions. A weak response to the Treasury Department auction on May 28 further pushed the benchmark yield to levels seen as worrying by the stock investors.
On May 29, the total outstanding Bitcoin futures open interest recorded its highest position since January 2023, swelling to 516k BTC – an increase of 6% over the previous week. The highest share of this interest comes from the Chicago Mercantile Exchange (CME) at 30%, followed by Binance at 22%, and Bybit at 15%, totaling a towering $34.8 billion.
While this high open interest could be interpreted as a bullish sentiment indicating a substantial demand for Bitcoin futures, over-reliance on this could lead to cascading liquidations following a 10% market correction. However, BTC price has shown resilience following the easing regulatory pressures in the U.S., including approval of a spot Ethereum ETF, Senate's vote to repeal the SEC’s proposed SAB 121 accounting rule, and Congress's passage of the FIT 21 reform. These factors aligned, tend to favor a bullish outlook for Bitcoin.
Perpetual contracts, in contrast to conventional monthly futures, have no expiry date and aim to emulate the underlying asset's price through the funding rate mechanism. A higher funding rate suggests more optimism as it reflects an increased demand for leverage. However, the current funding rate for perpetual futures is modest at 0.35% per week, suggesting room for more leverage.
Another essential measure is the futures premium, or basis rate. In balanced conditions, this ranges between 5% to 10% annually for Bitcoin futures. Presently, the 3-month futures premium is hovering at 14%, signaling further room for additional leverage sans the immediate risk of cascading liquidations.
Growth in open Bitcoins futures interest could bring possible liquidation concerns if a market correction materializes. Yet, current market indicators suggest a healthy state of affairs – Bitcoin price demonstrating resilience amidst softer regulatory pressures, a relatively low funding rate, and a moderate futures premium. This points towards the potential for a bullish outlook in the near term.
Remember, this information should not be considered as legal or investment advice. The views expressed are solely of the author and may not necessarily reflect the views or opinions of Cointelegraph.
Published At
5/29/2024 10:02:45 PM
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