Bitcoin’s price has been on a downward trend since reaching $70,300 on May 27, currently sitting near $67,500, marking a 4% decline in just two days. However, the support at $66,000 has been holding strong since May 17, providing some reassurance to bullish investors who are not yet alarmed by this correction.
The concerning data comes from the Bitcoin derivatives markets, specifically the rising number of leverage bets, known as open interest, which reached a 16-month high on May 29.
Investors are shifting away from fixed-income positions and showing a preference for Bitcoin due to various macro trends. The S&P 500 is only 1.2% below its all-time high, indicating a robust stock market. Additionally, the 5-year Treasury yield has increased from 4.34% to 4.63% in the past two weeks, suggesting a move away from fixed-income positions.
This shift was particularly noticeable after a weak demand at a Treasury Department auction on May 28, which caused the benchmark yield to reach levels that may concern stock investors.
On May 29, the aggregate open interest for Bitcoin futures reached 516k BTC, the highest since January 2023, and a 6% increase over the past week. The Chicago Mercantile Exchange (CME) leads the market with a 30% share, followed by Binance with 22% and Bybit with 15%. This substantial open interest, equivalent to $34.8 billion, can be both positive and negative for the market.
A high open interest indicates bullish sentiment and a strong appetite for Bitcoin futures. However, excessive reliance on leverage can lead to cascading liquidations and exacerbate price drops. It’s worth noting that Bitcoin’s price has remained resilient since regulatory pressures in the United States have eased.
Positive regulatory developments, such as the approval of a spot Ethereum exchange-traded fund, the Senate’s vote to repeal the Securities and Exchange Commission’s proposed SAB 121 accounting rule, and Congress passing the FIT 21 reform, which allows most cryptocurrencies to be treated as commodities and regulated by the Commodity Futures Trading Commission, are all factors that favor Bitcoin bulls.
When it comes to Bitcoin futures, the funding rate for perpetual contracts is currently at 0.35% per week, indicating a modest cost for leverage. This rate can increase to 2.4% per week during times of high optimism, reflecting increased demand for leverage.
Another important metric is the basis rate or futures premium. In a healthy market, the basis rate for Bitcoin futures is typically between 5% and 10% annually. This premium exists because futures contracts have a settlement date in the future, and traders are willing to pay more to lock in prices. Currently, the 3-month futures premium is at 14%, which is above the neutral range but not excessively high. This suggests that there is still room for additional leverage without immediate risk of cascading liquidations.
While the increase in Bitcoin futures open interest may raise concerns about potential liquidations during a market correction, overall indicators suggest that the market is in a healthy state. Bitcoin’s price resilience, combined with a relatively low funding rate and a moderate futures premium, indicates that there is no immediate cause for concern. Instead, it likely signals a growing institutional appetite for Bitcoin, pointing towards a potentially bullish outlook in the near future.
Disclaimer: This article is for general information purposes only and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.