Bitcoin Futures Open Interest Surges to 16-Month High With Possible $70,000 Target

BTC derivatives indicate moderate bullish sentiment, potentially clearing the path for further gains beyond $70,000.

Source: webrazzi.com

Since touching $70,300 on May 27, the price of Bitcoin has trended downwards, now hovering around $67,500, marking a 4% decline over two days. Nonetheless, the $66,000 support has remained robust since May 17, offering some comfort to bullish investors who are not overly troubled by this pullback. However, there's potentially worrisome data stemming from Bitcoin derivatives markets. The volume of BTC leverage bets, represented as open interest, surged to a 16-month peak on May 29.

Investors Are Shifting Away From Fixed Income Assets Showing a Preference for Bitcoin’s Performance Instead

Macro trends have significantly impacted Bitcoin's performance. The S&P 500 is currently only 1.2% below its all-time high, signaling a robust stock market. Moreover, the 5-year Treasury yield has risen to 4.63% from 4.34% two weeks ago, indicating a shift away from fixed-income assets. This transition became particularly evident after weak demand at a Treasury Department auction on May 28, which elevated benchmark yields to levels that might concern stock investors.

On May 29, aggregate Bitcoin futures open interest surged to 516K BTC, the highest since January 2023, with a 6% increase over the past week. Top Exchange leads the market with a 30% share, trailed by exchange with 22%, with 15%. While such high open interest suggests bullish sentiment and a strong appetite for Bitcoin futures, it also poses risks.

An overreliance on leverage could make the market vulnerable. A typical 10% market correction might trigger cascading liquidations, exacerbating the price decline. However, Bitcoin has shown resilience amid easing regulatory pressures in the United States. Positive regulatory developments, such as the approval of a spot Ethereum exchange-traded fund, the Senate's vote to repeal the Securities and Exchange Commission’s proposed SAB 121 accounting rule, and Congress passing the FIT 21 reform, which allows most crypto to be treated as commodities and regulated by the Commodity Futures Trading Commission, all favor Bitcoin bulls.

Bitcoin Futures Indicate a Moderate Sense of Optimism

Perpetual contracts differ from traditional monthly futures as they lack an expiry date, tracking the underlying asset's price closely through a funding rate mechanism. This rate, currently at 0.35% per week, signifies a modest cost for leverage. During times of heightened optimism, it can spike to 2.4% per week, reflecting increased demand for leverage.

Another crucial metric is the basis rate, or futures premium. Typically, in a healthy market, Bitcoin futures exhibit a basis rate ranging from 5% to 10% annually. This premium arises because futures contracts settle in the future, prompting traders to pay more to secure prices. The 3-month futures premium stands at 14%, above the neutral range but not excessively high. This suggests that there is still room for additional leverage without immediate risk of cascading liquidations.

A Rally Beyond $70,000 Might Occur but It Won’t Necessarily Be Driven Solely by Futures Markets

The expansion of Bitcoin futures open interest may spark worries regarding potential liquidations during a market correction. However, the broader indicators paint a picture of a healthy market. Bitcoin's price resilience amid relaxed regulatory pressures, coupled with a relatively low funding rate and a moderate futures premium, suggests that the uptick in open interest isn't an immediate cause for concern. Rather, it likely indicates heightened institutional interest in Bitcoin, hinting at a potentially bullish outlook in the short term.

Disclaimer: FameEX makes no representations on the accuracy or suitability of any official statements made by the exchange regarding the data in this area or any related financial advice.