Surging open interest might well be a sign that a breakout in the bitcoin price could well be imminent.
Some worry there's a dark side to the boom in Bitcoin ATMs just as the premium for Grayscale's Ethereum Trust tumbles 50%.
MARKET MOVES
There's a strange trend in crypto derivatives right now: volumes have dropped precipitously, just as open interest has boomed. What's going on?
Since the May 11 halving event, trading volumes in crypto futures has fallen 76%, from $35 billion to $8.5 billion by June 23, according to research firm, Skew.
Futures trading activity hit an all-year low Sunday after slumping to just $5 billion.
Options activity may have hit a high at $226 million on June 2, but activity has still gone south. Volumes came in at around $80 million June 23, down nearly 62% from its peak.
Derivative trading volumes usually increase during periods of pronounced volatility. On March 12, when the bitcoin price fell by nearly 40%, daily volumes clocked a record $45 billion.
A fall in trading volumes could, therefore, be down to the fact bitcoin has been pretty dull recently.
Prices have stuck to a narrow $9,000 to $10,000 range since May 11; it has so far failed to hold its own above the crucial $10,000 threshold.
Bitcoin's volatility hit an eight-month low earlier this week.
But while the number of settled contracts remains at a yearly low, open interest - the number of contracts that have yet to settle - remains high.
Open interest in futures came to $3.8 billion, on June 23, up 50% from $2.5 billion from the start of May. On CME, open interest has risen by a staggering 1,145% since the halving, hitting a record of $436 million on June 23.
In options, total open interest has consistently hit new highs almost every day for the past four weeks. At $1.1 billion on May 23, it hit $1.7 billion on Tuesday.
Investors may be adding bets to position for a big move in either direction, which is often seen following a prolonged consolidation.
In traditional markets, options traders often take “straddles”, a non-directional strategy comprises buying both calls (bullish bets) and puts (bearish bets). That could be the reason for the recent rise in the open interest in options.
While options markets are still new in crypto, it might be that the same thing is happening here. The uptick in open interest indicates that the market is betting on a breakout - whether that's up or down still hasn't been decided yet.
– Omkar Godbole, Reporter
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Trend: Bitcoin defended key support early Thursday, keeping the immediate neutral bias intact.
The biggest cryptocurrency by market value absorbed selling pressure around $9,000 and is now trading largely unchanged on the day near $9,270, according to CoinDesk's Bitcoin Price.
The price bounce has saved the day for the bulls, as acceptance below $9,000 would have meant a downside break of the multi-week long trading range of $9,000 to $10,000. A range breakdown often invites stronger selling pressure, leading to deeper losses. In bitcoin's case, it would have opened the doors for a decline to the 200-day moving average (MA) at $8,300.
While the cryptocurrency has staged an impressive recovery from crucial support, the bias remains neutral, as resistance at $10,000 is intact. The cryptocurrency has failed multiple times over the past five months to establish a strong foothold above that level.
That level, however, could come into play if the global equity markets reverse losses seen on Wednesday. At press time, the futures tied to the S&P 500 are reporting a 0.40% decline.
The US stocks collapsed on Wednesday with Dow Jones Industrial Average losing more than 800 points as number of coronavirus cases spiked.
Bitcoin's positive correlation with the stock markets has strengthened over the past two months due to the resurgence of Covid-19 fears.
Disclaimer: The information presented in this message is intended as a news item that provides a brief summary of various events and developments that affect, or that might in the future affect, the value of one or more of the cryptocurrencies described above. The information contained in this message, and any information liked through the items contained herein, is not intended to provide sufficient information to form the basis for an investment decision. The information presented herein is accurate only as of its date, and it was not prepared by a research analyst or other investment professional. You should seek additional information regarding the merits and risks of investing in any cryptocurrency before deciding to purchase or sell any such instruments.
What's Going on with Bitcoin Derivatives?