Bitcoin (BTC) price rose 8% from October 14 to 15, making it up 11.5% over the past 30 days. Bitcoin is currently significantly outperforming the S&P 500, which is up 3.8% over the same period.
However, some traders are concerned that the rapid increase in demand for Bitcoin leverage could pose a potential risk.
Demand for Bitcoin futures has surged to its highest level since 2023.
Total Bitcoin futures open interest, which measures the total number of BTC futures contracts, is causing some anxiety among investors as it signals a growing appetite for leverage. High open interest can increase the risk of cascading liquidations due to unexpected price rises or falls, causing traders to expect increased volatility.
Increased volatility is often a retrospective indicator. This means that traders wait until prices are volatile before adding new positions. This delayed response may explain the increased use of leverage, as participants become more confident in entering trades after observing significant price movements.
Bitcoin futures count BTC, which is open interest. Source: Coinglass
The total number of Bitcoin futures contracts reached 566,270 on October 15, the highest level since January 2023, according to data. In U.S. dollar terms, open interest currently stands at $38 billion, 2.5% below the all-time high reached on March 28. , 2024. This clearly indicates an increased demand for leverage using BTC derivatives.
Considering the relatively strong performance, it is understandable why Bitcoin investors have increased their positions through derivatives contracts. Additionally, the recent net inflow of $810 million into the U.S.-listed Bitcoin spot exchange-traded fund (ETF) from October 11 to 14 further fueled bullish sentiment, signaling increased institutional interest.
In this context, investors often assume that increased demand for Bitcoin futures reflects growing optimism. However, it is important to remember that all derivatives contracts require both a buyer and a seller. It is important to analyze Bitcoin futures premiums to determine whether the recent pressure is coming from leverage demand from buyers (long) or sellers (short).
Bitcoin monthly futures typically incur costs due to extended settlement periods, and sellers typically demand a 5-10% annual premium to compensate for these delays.
Annual premium for Bitcoin futures. Source: TradingView
Bitcoin futures premiums reached 10% in the early hours of October 15 as the price of Bitcoin surged to $67,885, but the indicator still has not crossed the threshold that signals a bullish market. Despite the temporary surge in demand caused by essentially leveraged buying, Bitcoin’s overall market structure remains balanced between bullish and bearish trends.
relevant: Cryptocurrency Market Matures ‘Dramatically’ in 2024: Coinbase
This data does not rule out the possibility that participants on both sides may be liquidated using excessive leverage. However, given that the Bitcoin price fluctuated by 8.6% on October 15th, and that the BTC futures position that was forcibly liquidated by the derivatives exchange was less than $70 million, this suggests that traders are refraining from using leverage.
Therefore, despite the increase in BTC futures open interest, the likelihood of chain liquidations in the short term is relatively low.
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.