Bitcoin (BTC) price has been trending downward since testing $70,300 on May 27 and is currently near $67,500, down 4% in two days. However, support at $66,000 has remained firmly in place since May 17, providing some relief to bulls who are not yet surprised by this correction.
Potentially concerning data comes from the Bitcoin derivatives market, as the number of BTC-equivalent leveraged bets, known as open interest, rose to a 16-month high on May 29.
Investors prefer Bitcoin’s performance by moving out of fixed income positions.
Macro trends have influenced Bitcoin’s performance. This suggests that the stock market is strong, as the S&P 500 is currently 1.2% below its May 23 all-time high of 5,342. Additionally, the five-year Treasury yield rose to 4.63% from 4.34% two weeks ago, suggesting traders are moving away from bond positions.
This change was especially noticeable after the May 28 Treasury auction, where weak demand pushed benchmark yields higher to levels that may concern stock investors.
On May 29, Bitcoin futures open interest totals reached 516,000 BTC, the highest since January 2023 and a 6% increase over the previous week.
Chicago Mercantile Exchange (CME) leads the market with a 30% share, followed by Binance with 22% and Bybit with 15%. This significant open interest of $34.8 billion is a double-edged sword for the market.
High open interest can indicate bullish sentiment as it shows strong interest in Bitcoin futures. However, if bulls rely too heavily on leverage, a typical 10% market correction can trigger cascading liquidations, exacerbating price declines. Bitcoin prices have shown resilience, especially since regulatory pressure in the US eased.
Positive regulatory developments include the approval of a spot Ethereum (ETH) exchange-traded fund, the Senate’s vote to repeal the Securities and Exchange Commission’s proposed SAB 121 accounting rule, and the FIT 21 reform that would allow most cryptocurrencies to be treated as commodities. That includes what Congress passes. Regulated by the Commodity Futures Trading Commission. These factors overall are favorable for Bitcoin strength.
Bitcoin Futures Reflect Moderate Optimism
Perpetual contracts, unlike traditional monthly futures, have no expiration date. It is designed to closely track the price of the underlying asset using a funding rate mechanism. If the funding rate is positive, long (buy) position holders pay short (sell) position holders and vice versa.
The current funding rate for perpetual futures is 0.35% per share, which represents a modest cost for leverage. This ratio can surge as high as 2.4% per share in times of high optimism, reflecting increased demand for leverage.
The base rate or futures premium is another important indicator. Typically, in a healthy market, the base rate for Bitcoin futures is 5% to 10% per year. This premium exists because the settlement date of the futures contract is in the future and traders are willing to pay more to lock in the price.
The three-month futures premium is 14%, which is higher than neutral rights but not excessively high. This indicates that there is still room for additional leverage without the immediate risk of chain liquidation.
Related: Bitcoin ‘Diamond Hands’ Selling Price Drops Nearly 50% to $73.8K – Research
A rise above $70,000 is possible, but it won’t necessarily be driven by the futures market.
An increase in Bitcoin futures open interest may raise concerns about potential liquidation during a market correction, but overall indicators suggest the market is in healthy shape.
The resilience of the Bitcoin price amid easing regulatory pressures, combined with relatively low funding rates and modest futures premiums, means there is no immediate reason to fear an increase in open interest. Instead, it signals a growing institutional preference for Bitcoin and points to a potentially bullish outlook in the near term.
This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.