As Bitcoin (BTC) futures reached a record-breaking open interest (OI) in U.S. dollar terms on Tuesday, the cryptocurrency market saw a significant surge in interest and activity. The asset surpassed $71,000 for the first time since June, following a sharp increase in OI of over 20,000 BTC within just 24 hours. This marks the largest one-day leap since June 3, with the total outstanding derivative contracts, including futures and options, reaching almost 600,000 BTC, or approximately $42.6 billion.
Open Interest, or OI, is a term used in derivatives trading that refers to the number of contracts that are open and have not yet been settled. A high OI indicates a strong interest in a particular asset, and when combined with rising prices, it suggests new money is entering the market. This influx of investment, as witnessed on Tuesday, is a sign of a strengthening trend.
However, high OI can also lead to increased volatility, particularly as contracts near their expiration date. Traders may scramble to close, roll over, or adjust their positions, leading to significant price fluctuations. Research firm Kaiko pointed out that while futures are showing strong interest from traders, the funding rates for such positions remain below March highs, indicating a more tempered demand.
Meanwhile, U.S.-listed spot ETFs have seen $2.7 billion of net inflows since October 16. This shift could be attributed to the evolving interests of institutional investors, who, at the start of the year, were primarily focused on basis trades but are now leaning more towards bullish long directional plays.
In contrast, the futures contracts offered on the Chicago Mercantile Exchange (CME) experienced a 9% surge in 24 hours, taking their OI to 171,700 BTC, valued at over $12.22 billion. This gives the CME a 30% dominance in the futures OI market, maintaining its top position.
However, despite these record-breaking figures, since the peak of bitcoin denominated futures contracts on the CME exchange on October 16, there has been a drop of over 6%. In contrast, ETF inflows have seen a cumulative net inflow of $2.7 billion, led by BlackRock’s iShares Bitcoin Trust (IBIT), which has recorded $2.2 billion of net inflows in the same period and holds over 400,000 bitcoin in the ETF.
Analyst Checkmate noted the recent divergence between the CME OI and the ETF inflows, stating that there seems to be a shift from cash and carry trades towards more directional ETF inflows.
However, Andre Dragosch, head of research at Bitwise, offered a different perspective, suggesting that due to the increase in net short-positioning and an increase in CME OI in the past 24 hours, the basis trade may be picking up momentum.
As the market continues to shift and evolve, these dramatic fluctuations in Bitcoin futures and ETF inflows provide a fascinating insight into the changing dynamics of the cryptocurrency industry.
