December 22, 2024
Bitcoin price chases after K as BTC derivatives data signals fresh inflow

Bitcoin (BTC) price action has been a hot topic this week, and based on the current sentiment expressed by market participants on social media, it can almost be assumed that the long-awaited bull market has begun.

As Bitcoin prices rose 16.1% between October 22 and 24, bearish traders using futures contracts found themselves liquidated by $230 million. One data point that stands out is the change in Bitcoin’s open interest, a metric that reflects the total number of active futures contracts.

There is evidence that Bitcoin bears took an unexpected hit on October 22, but they did not use much leverage.

Bitcoin futures total open interest, USD. Source: Coinglass

During the rally, BTC futures open interest increased from $13.1 billion to $14 billion. This is different from August 17, when the price of Bitcoin fell by 9.2% in just 36 hours. Although the percentage size of the price change was small, this sudden move resulted in $416 million in long liquidations. At that time, Bitcoin futures open interest fell from $12 billion to $11.3 billion.

The data appears to confirm the circulating gamma squeeze theory, which means market makers’ stops are being “caught up.”

Bitcoin celebrity NotChase Coleman explained on the

The most important issue with the short squeeze theory is the increase in open interest in Bitcoin futures. This suggests that demand for new leveraged positions outweighed forced liquidations, even if there were related liquidations.

Did Changpeng Zhao and BNB play a role in Bitcoin price movements?

Another interesting theory by user M4573RCH on the Margin collateral for Venus Protocol.

According to M4573RCH’s theory, after a successful intervention, CZ will repay Venus Protocol’s interest and use BNB to buy back Bitcoin to “rebalance” the position.

It is worth noting that the supply of BNB on the platform exceeds 1.2 million, worth $278 million. Therefore, assuming 50% of the position is controlled by a single entity, this is enough to create a $695 million long position using 5x leverage on Bitcoin futures.

Of course, one can never confirm or deny speculations such as Venus-BNB manipulation or a “gamma squeeze” in Bitcoin derivatives. Both theories make sense, but cannot assert the rationale behind the entities or times involved.

The increase in Bitcoin futures open interest indicates that new leveraged positions have entered the space. The move may have been driven by news that BlackRock’s spot Bitcoin ETF requested a listing with the Depository Trust & Clearing Corporation (DTCC), although the incident did not increase the likelihood of SEC approval.

Bitcoin derivatives portend healthy bull market and room for further gains

To understand how professional traders are positioning themselves after an unexpected rally, BTC derivative indicators should be analyzed. Typically, Bitcoin monthly futures trade at an annualized premium of 5% to 10% compared to the spot market, indicating that sellers require additional funds to delay settlement.

Bitcoin 1-month futures contango. Source: Laevitas.ch

On October 24, the premium of Bitcoin futures reached 9.5%, the highest in more than a year. More notably, it broke above the 5% neutral threshold on October 23, ending a nine-week period dominated by bearish sentiment and subdued demand for leveraged long positions.

related: Matrixport doubles down on Bitcoin year-end forecast to $45,000

To assess whether a move above $34,000 is leading to excessive optimism, traders should examine the Bitcoin options market. The delta 25% bias tends to rise above 7% when traders expect Bitcoin prices to fall, while periods of excitement often drop below negative 7%.

Bitcoin 30-day options 25% delta bias. Source: Laevitas.ch

The 25% delta bias for Bitcoin options shifted from neutral to bullish on October 19 and continued in this direction until reaching -18% on October 22. This is an extremely bullish sign, with put (sell) options trading at a discount. The current level of -7% suggests that demand between calls (buys) and puts is somewhat balanced.

Whatever triggered the unexpected rise in prices has prompted professional traders to shake off a pessimistic period. However, this is not enough to justify overpriced call options, which is a positive sign. Additionally, there is no sign that buyers are overleveraged, as contango remains at a modest 8%.

While speculation about the approval of a spot Bitcoin ETF continues, there is enough evidence to support a healthy influx of funds to justify a Bitcoin price break above the $35,000 mark.