Open Interest in Bitcoin Futures Extends Gains, Nearing All-time High Reaching Over $5 Billion

A cryptocurrency futures data platform recently published data indicating that the total number of Open Interest in Bitcoin futures has currently reached $5.35 billion, nearing its all-time high of $5.7 billion. Aggregated Open Interest (OI) for Bitcoin futures continues experiencing a surge as the price of the leading cryptocurrency gains new highs.

The growing Open Interest for Bitcoin futures indicates rising interests among investors in the digital asset, possibly because of the latest price surge. Bitcoin has ended the month of October with an estimate of 30% rise. A few hours yesterday, the price of the largest cryptocurrency rose o over $14,000 during the US election period.

The average daily trading volume for Bitcoin futures has remained above $5 billion for the last two weeks, an indication of investors’ interest in the cryptocurrency. The value of total Open Interest reached $5.17 million on October 23 last month. Based on the current data, the market has seen an addition of $0.18 billion within two weeks. 

As Bitcoin continues rising, a possibility of the Open Interest surpassing the all-time high at $5.7 billion remains high. At the current moment, OKEX Malta-based crypto exchange holds the biggest share of Open Interest in Bitcoin futures. According to Bybt, OKEX accounts for $1.06 billion of the total Open Interest. Binance crypto exchange, the Chicago Mercantile Exchange (CME), and BitMEX derivative exchange hold about $0.85, $0.78, and $0.62 billion, respectively.

The rising interest in Bitcoin derivatives responds with the bullish trends in the price of the digital asset. Messari crypto research firm published a report entitled “Macro Outlook: Bitcoin and the US. Election,” showing top traders’ exposure and institutional investors’ growing Open Interest in Bitcoin futures contracts corresponds with the Bitcoin’s rising price. In March this year, Bitcoin price bottomed at $4,000 when the global economy faced a crisis due to the coronavirus. But today, the COVID-19 pandemic has partly contributed to the increase of Bitcoin price to above $13,000. Messari stated:

"Rising prices during an uptrend while open interest is also on the rise could mean that new money is coming into the market (reflecting new positions). This could be a sign of bullish sentiment if the increase in open interest is being fueled by long positions.”

According to Messari, the US election result, uncertainty over such results, and their implications could lead to a possible bearish case for Bitcoin. If Trump loses reelection, then he would have little incentive to draft a stimulus bull before departing the office in mid-January. Some investors might fear the impact of President Biden’s capital gains tax plan.

Using Open Interest to Make Money

Futures have been existing in the investment industry for several years but only entered into the crypto landscape at the end of 2017. Since then, all crypto exchanges have been interested in launching Bitcoin futures trading that provides people with new ways to invest in the largest cryptocurrency. 

Futures refers to an agreement between two parties to sell or buy a financial instrument or commodity at a particular price and at a specific future date. When the contract expires, both parties obligated to the contract must sell and buy at the agreed price, even if the price of the underlying asset has risen or decline over time.

Bitcoin futures enable people to speculate on the price movement of the crypto asset, without owning any Bitcoin, and eventually make profits through their speculations.

Open Interests are derivative contracts that have not been settled. Traders negotiate and agree to trade such futures contracts on futures exchanges, majorly betting on whether the price will fall or rise. A successful trader makes profits based on the difference between the actual selling price and the predetermined price.