In recent weeks, Bitcoin (BTC) has been highly volatile, surpassing $16,000 for the first time in three years. However, open positions in the futures market indicate that large fluctuations may be very close.
The term “open interest” refers to the sum of active open interest in the futures market. If the open interest is high, it means that a large number of traders are betting on Bitcoin price movements.
Currently, as of November 1
Sorout said that the “liquidation feast” has not yet begun, referring to Bitcoin’s tendency to cascade liquidation after large price fluctuations. He said:
“Today, the open positions of BTC futures and perpetual equity have reached a new high, and the liquidation feast has not even begun.”
Increase in open positions may trigger major fluctuations
Bitcoin futures contracts usually provide high leverage of up to 125 times. Traders can get any price between 1x and 125x leverage according to the platform.
When the leverage of the position is high, it means that the liquidation price is closer to the entry price. For example, if a trader places a 20 times long position in Bitcoin at a price of $16,300. Using 20 times leverage, traders can trade 200,000 USD with capital worth 10,000 USD.
But high leverage means that the range of liquidation prices is tighter. In the case of 20 times more than $16,300, if the BTC falls below $15,600, the position will be liquidated.
If the position is liquidated and a stop loss is set, the transaction will clear the entire position. Therefore, if 20 times the long position of USD 10,000 (USD 200,000 position) is liquidated, then USD 10,000 will be completely lost.
Therefore, when major price fluctuations occur and open positions in the futures market are high, Bitcoin tends to fluctuate significantly.
It is uncertain whether this trend will have a positive or negative impact on Bitcoin’s recent price cycle. If the long contract is squeezed, then the BTC price will fall, and if the short contract is liquidated, the price will rise.
In major futures exchanges, the average funding rate for Bitcoin is 0.01%. This means that the market is relatively balanced and neither buyer nor seller overwhelms the market.
The options market is also heating up
The rest of the Bitcoin derivatives market also saw an increase in trading activity and open interest.
Top cryptocurrency options exchange Deribit shared Skew’s chart, showing that the total open interest in Bitcoin options has also reached a record high in the past few days.
The timing of the soaring of open positions in the options market is worthy of attention, because theoretically speaking, open positions in options should peak at the end of the month.
The monthly BTC option contract expires on the fourth Friday of each month, so open positions tend to surge in the last week of each month.
However, as reported by Cointelegraph, the data shows that the upcoming $525 million option expiry will not affect the longs. As long as the BTC stays above $15,500, the expiration of the large option will not have a significant impact on the price.