Open interest in Bitcoin (BTC) on derivatives exchanges suddenly surged by $1 billion on September 18, prompting investors to question whether whales were hoarding in anticipation of the unsealing of Binance court documents.

However, a closer look at derivatives indicators reveals a more nuanced picture, as funding rates show no clear signs of excessive buying demand.

The decision to unseal the documents was made by the U.S. Securities and Exchange Commission (SEC), which accused Binance of being uncooperative despite previously agreeing to a consent order related to unregistered securities operations and other charges.

Total BTC futures open interest, USD (green, left). Source: CoinGlass

Open interest soared to $12.1 billion, while the price of Bitcoin simultaneously rose 3.4% to reach its highest in more than two weeks at $27,430.

However, investors soon realized that little specific information was revealed in the unsealed document, aside from comments from Binance.US auditors about the challenges of ensuring full collateralization.

Later in the day, federal Judge Zia Faruqui rejected the SEC’s request to inspect Binance.US’s technical infrastructure and share more information. Nonetheless, the judge ruled that Binance.US must provide more details about its custody solution, casting doubt on whether Binance International ultimately controls the assets.

As of September 18, Bitcoin’s open interest has fallen back to $11.3 billion, and the price has fallen 2.4% to $26,770. This decline suggests that the entities behind the surge in open interest are no longer inclined to maintain their positions.

The whales may be disappointed with the court outcome, or the price litigation may not unfold as expected. Regardless, 80% of the increase in open interest disappeared in less than 24 hours.

Buyers and sellers of futures always match

It can be assumed that much of the demand for leverage was driven by bullish sentiment, as the price of Bitcoin rose as open interest increased, then plummeted as 80% of contracts were liquidated. However, attributing causation solely to the Binance Court’s ruling appears to be unwarranted for a number of reasons.

First, no one expected that these unsealed documents would be beneficial to Binance or its CEO Changpeng Zhao “CZ” because it was the SEC that originally requested the release of these documents. Additionally, Bitcoin futures contract funding rates, which measure the imbalance between long and short positions, have remained largely stable during this period.

Average 8-hour funding rate for BTC futures. Source: CoinGlass

If we do see an unexpected $1 billion surge in open interest (driven largely by desperate buyers), it’s reasonable to assume that funding rates will surge above 0.01%. However, the opposite happened on September 19, with Bitcoin’s open interest expanding to $11.7 billion, but funding rates falling to zero.

As Bitcoin price rises above $27,200 in the second phase of open interest growth, it is becoming increasingly clear that price pressure tends to trend upward, regardless of the underlying motivation. While the exact reason may remain elusive, certain trading patterns may shed light on this trend.

Market maker hedging may be responsible for OI surge

A reasonable explanation might be that market makers execute buy orders on behalf of large clients. This would explain the initial enthusiasm in spot markets and Bitcoin futures, driving prices higher. After the initial surge, market makers become fully hedged, eliminating the need for further purchases and causing prices to correct.

During the second phase of the trade, there is no impact on the Bitcoin price because the market maker must sell the Bitcoin futures contract and buy spot Bitcoin. This resulted in a decrease in open interest and may have disappointed some participants who expected increased buying enthusiasm.

Rather than hastily labeling every “Bart” pattern as manipulation, it is better to delve into the operations of the arbitrage desk and carefully analyze BTC futures financing rates before drawing conclusions. Therefore, an increase in open interest does not necessarily mean a buying frenzy when there is not excessive demand from leveraged long positions, as was the case on September 18.

This article is for general information purposes only and is not intended to be, and should not be construed 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.