There was a time when the BitMEX derivative exchange prevailed over other exchanges and the company’s market share was 50% until July 2019. For this reason, traders followed all metrics regarding BitMEX, including the funding price and the open interest basis.
The Open Interest measures the total number of contracts of market participants. As the number increases, the potential filter size increases. There was a $ 1,400 crash on August 2 when $ 1 billion futures closed heavily due to insufficient margins.
Although not a magic number, traders are usually shocked when open interest approaches $ 1 billion, leading to what some traders call the BitMEX ghost. This became evident in the second half of 2019 when there were massive drops in Bitcoin prices on seven different occasions when the maximum interest rate was $ 1 billion.
The perceived risk associated with higher open interest rates depends on how liquid the underlying asset is. During the third quarter of 2019, the average volume of Bitcoin in spot exchanges was $ 2.4 billion per day. Thus, one contract for 42% of Bitcoin’s volume seemed important enough.
Bitcoin price linked to the perpetual open interest rate on BitMEX, in US dollars Source: TradingView
As you can see from the chart above, there is no doubt that the open interest approaching $ 1 billion coincided with a similar drop in prices from July to September. It should be noted that a large number of the current contracts cannot be considered bullish or bearish.
The second half of 2019 was mostly bearish.
The second half of 2019 has been extremely challenging for cryptocurrencies, and as most investors remember, even President Trump openly founded Bitcoin, Cointelegraph reported. All this happened when US Treasury Secretary Stephen Mnuchin demanded more regulation and oversight of the sector.
The chart above shows more detailed information about how significant BitMEX’s 40% market share was at that time. One exchange had an open interest rate equivalent to half of Bitcoin’s daily spot trading volume.
Fast forward to 2020 and OKEx replaced BitMEX, with the total open interest rate on permanent and futures contracts exceeding $ 1 billion on July 25.
The remaining competitors have continued to increase their stake, but only recently have the Chicago Mercantile Exchange (CME), Binance and Bybit overcome the psychological barrier of $ 1 billion.
Today’s market is a bit like 2019, but with less risk.
Ironically, it happened on November 20, just four days before the 16% collapse to $ 16,334. By comparison, the total open interest rate on futures contracts in September 2019 was $ 3 billion. This time, four exchanges managed to break the one billion dollar barrier.
While open interest in futures grew to $ 7.4 billion, the average daily volume of spot exchanges rose to $ 3.5 billion. So, unlike the previous year, a single exchange with an open interest rate of $ 1 billion shouldn’t come as a surprise as it did in 2019.
To summarize, the markets have been growing and developing to the point where the specter of BitMEX has disappeared, but it can be replaced by a similar phenomenon that occurs when four exchanges cross the open, fixed-income, futures markets of $ 1 billion.
Either way, such an indicator should now be seen as four exchanges have replaced BitMEX as the market leader. Combined, Binance, CME, OKEx, and Bybit account for more than half of the interest opened in futures contracts. While this coincidence only happened once, it actually simulates the impact of a billion dollars in the past.