Bitcoin (BTC) has been volatile in recent weeks, raising more than $16,000 for the first time in three years. But open positions on the futures market indicate that a large peak of volatility may be very close.
The term “open positions” refers to the total number of contracts that are actively opened in the futures market. If the open interest is high, it means that many traders are betting on Bitcoin price holders.
Bitcoin futures combine open positions. Source: Skew
At present, since November 13, Mohit Surt, the co-founder of Betazo Capital, has confirmed that the holdings of Bitcoin futures contracts have been high. This means that the possibility of increased volatility in the near future is not surprising.
Sarout said that the “liquidation festival” has not yet begun, on the grounds that Bitcoin tends to undergo a series of liquidations, accompanied by large price fluctuations. He said:
“The common open interest in futures and permanent BTC cases has set a new climax today. The liquidation holiday has not yet begun.”
Higher open interest rates may lead to higher volatility
Bitcoin futures usually provide leverage of up to 125 times. Traders can use leverage from 1x to 125x depending on the platform.
If the leverage of the position is high, it means that the liquidation price is closer to the entry price. For example, if a trader buys 20 bitcoins at a price of $16,300. With 20 times leverage, traders can trade 200,000 USD with 10,000 USD funds.
But higher leverage means a narrower clearance price level. Calculated at 20 times the length of $16,300, if the BTC falls below $15,600, the position will be liquidated.
If the position is immediately closed by a stop loss, the transaction will completely delete the position. Therefore, if a debt of $10,000 (a position of $200,000) is liquidated 20 times, all $10,000 will be lost.
Therefore, when prices are more volatile and open positions in the futures market are high, Bitcoin usually notices a large increase in volatility.
It is currently uncertain whether this trend will have a positive or negative impact on Bitcoin’s short-term price cycle. If a long contract is signed, the price of BTC will fall; if a short contract is liquidated, it will rise.
On major futures exchanges, the average Bitcoin financing rate is 0.01%. This means that the market is relatively balanced and will not be overwhelmed by buyers and sellers.
The options market is also heating up
Trading activity and open interest in the remaining bitcoin derivatives market are also increasing.
Deribit, the largest cryptocurrency exchange, shared a Skew chart, which shows the total holdings of Bitcoin and has also set a record high in recent days.
It is worth noting that the timing of the rise in public interest rates in the options market is because it is theoretically expected that the interest rates of public options will rise by the end of this month.
The monthly BTC option contract expires on the fourth Friday of each month, so the public interest rate usually rises in the last week of each month.
However, according to the Cointelegraph report, data shows that the next $525 million option will not beat the bulls. As long as the BTC stays above $15,500, the expiration of the large option is unlikely to have a significant impact on the price.