Bitcoin has shown incredible resilience above $60k over the last 48 hours, bouncing back on each hourly candle that fell below the range. At the time of publication, the asset was consolidating above $62k, and the market was collectively indicating bullish signs all around.
While on-chain metrics have been hotly debated in recent weeks, the derivatives market has gained traction in October, and at press time, OI and volumes are approaching 2021 ATH levels. In this article, we’ll look at whether rising interest in futures and options can lead to better price discovery or if there’s something else to be concerned about.
Bitcoin Options’ OI soars.
The derivatives market did not show much activity during the July-August recovery, but according to data, BTC Options open-interest has increased by 107 percent, or $6.3 billion, in October 2021. The most recent time OI was this high was in May.
Similarly, option trade volume increased to $1.5 billion, and such trade volumes have only been reached three times before in 2021. Now, because derivatives markets typically rise during both bullish and bearish markets, rising OI could be viewed as a double-edged sword.
However, the fact that all calls with strike prices above $100,000 are the preferred contract option indicates that trader sentiment was fairly bullish.
However, there is some divergence between futures and options, and futures options volumes appeared to be declining on a macro scale. The problem with high OI and low trade volumes is that it may necessitate a liquidation situation, which may impact price discovery. And speaking of which…
….Does the market have excessive leverage?
Bitcoin perpetual contracts hit an Open-Interest high of 6-months, crossing $18 billion in outstanding contract value. This value was last tested on April 14, 2021. The problem with such a scenario is that it indicates market over-leveraging, and over-leveraged trades tend to expire in the face of short-term price fluctuations, resulting in cascading liquidations of both longs and shorts.
Furthermore, it was stated that the funding rate on Binance and FTX had reached 5 September levels, the last time the market experienced a price collapse.
Are Bitcoin traders still submissive?
While Bitcoin may be consolidating above $60,000, data indicate that the average weighted sentiment toward Bitcoin remains neutral. However, this can be interpreted positively, as a break above its previous ATH of $64,000 may open the door to aggressive capital inflows.
With Bitcoin approaching $64k, the situation may turn heavily bullish, but over-leveraging in the futures trade may still act as a stumbling block.