According to Coinglass, a cryptocurrency derivatives analysis platform, during the period of Bitcoin (BTC) price decline, the nominal open interest (OI) of Bitcoin futures and perpetual futures decreased from $37 billion to $30.2 billion within a month, a decrease of approximately 18%. Bitcoin open interest is a key indicator of market sentiment.
These data seem to indicate that long positions or bullish leveraged bets that expected price increases have been closed in the past four weeks. However, this interpretation may only be partially correct and may obscure the bullish undercurrents in the market.
Open interest refers to the number of active or outstanding contracts within a specific time frame, and the calculation method of nominal open interest is to multiply the unit quantity of a contract by its current spot market price. Therefore, even if the total contract volume remains stable, changes in asset prices will also affect the nominal open interest, thus presenting a misleading market activity picture. And this seems to be the case in the Bitcoin market.
Coinglass data shows that open interest in BTC-denominated contracts has remained above 500,000 BTC for four weeks. At the same time, the funding rate of perpetual contracts on exchanges has remained positive, indicating a bullish betting tendency in the market.
Stable open interest (denominated in BTC), positive funding rates, and the decline in nominal open interest indicate that some traders are building new long positions, offsetting the so-called bullish bets closed by other market participants. Laurent Kssis, a cryptocurrency ETF expert at CEC Capital, believes that this shows that traders have not yet hesitated to set up long positions.
Similar conclusions can also be drawn from the continuous positive price difference (widely known as the basis) between futures prices and spot prices. Noelle Acheson, author of the newsletter “Crypto Is Macro Now,” said in an interview with CoinDesk that the activity in the spot and options markets shows a preference for upward trends.
According to Griffin Ardern, head of options trading and research at cryptocurrency financial platform BloFin, during the price decline, Bitfinex, a cryptocurrency exchange, has been a source of bullish pressure. Data shows that leveraged long positions (margin longs, involving the use of borrowed funds to purchase assets in the spot market) on Bitfinex have steadily increased since June.
Ardern said:
At the same time, according to QCP Capital, traders have been buying upward bets in the options market. The company stated in a market update released on Wednesday:
QCP Capital also mentioned two factors that may break the current downward trend. The first is that the liquidation clusters of Bitcoin and Ethereum (ETH) are highly biased towards the upside, which may trigger a short squeeze. In addition, the approval of the S-1 form of the Ethereum spot ETF may be imminent, which may lead to a rebound in Ethereum.
