“With BTC’s current open interest at 250,000, a signal of large price swings, the Bitcoin futures market may be predicting an imminent volatility”.
According to Glassnode, the Open Interest has been over the 250,000 level for most of January.
With the launch of numerous bitcoin futures ETFs last year, a lot of attention has been garnered by the futures market has from aficionados of crypto. The total number of unsettled derivatives contracts in the futures market is referred to as open interest. A crypto futures contract is an exchange of a particular crypto asset at a fixed price on a specific date.
Bitcoin Future Trading
Futures trading is significantly leveraged, according to open interest. When there are rapid market movements, a leveraged position trader may find himself in the red. Positions in the futures market that are about to enter negative equity are compelled to liquidate. It’s an automatic procedure that varies according to the leverage used in a trade but occurs once certain price boundaries are breached.
- Minor market corrections rarely result in prompt liquidations for less leveraged holdings, while the positions being highly leveraged are significantly more likely to be liquidated.
Aside from the huge open interest in the bitcoin futures, funding rates have turned negative this week, which indicates short bets have outnumbered bullish positions. Long bets indicate that prices will rise from a certain point, and the short positions indicate that prices will decrease from that point. A bullish-leaning market has more long positions, whereas a bearish market has more short positions. However, this is not always the case, specifically in crypto.
Apart from the fact that the bitcoin futures market is currently extremely leveraged, daily trading volume has fallen to roughly 30 billion dollars, down from 70 billion dollars during the bitcoin futures bull run, which came with the release of the first bitcoin futures of U.S ETFs. If price variations occur, a thinner market may contribute to the volatility.
“With increasing future open interest and what looks to be a specific to a given market bias, the danger of upside deleveraging remains,” (argues Glassnode)
Bitcoin’s Future Outlook
Because Bitcoin is the largest cryptocurrency in terms of market value, and some markets tend to follow its patterns, it is a good prediction of the crypto market in general.
In 2021, the price of bitcoin began to roll the rollercoaster, reaching a new high of $ 68,000 in November. Following the previous rise of $ 60,000 in April and October and a summer decline to less than $ 30,000 in July, this record high has been suspended. Because of this flexibility, experts recommend that you limit your crypto investment to less than 5% of your total portfolio initially.
What Bitcoin Volatility Mean for Investors
The volatility of Bitcoin is another reason why investors are sticking to a long-term strategy. If you are buying long-term growth, do not worry about short-term fluctuations. When it comes to your cryptocurrency investing, the best thing you can do is “put it away and forget it.” Emotional reactions can force investors to make hasty decisions and decisions that lead to losses in their investment, as experts continue to warn us every time there is a market movement – whether high or low.
The future of Cryptocurrency
We can speculate (and many will do) what value bitcoin will have to investors in the coming months and years, but the reality is that it is still a new and speculative investment with a small history of making predictions. No one really knows what a specialist believes or says. That is why, in the process of accumulating long-term wealth, you should invest only what you intend to lose and stick to many traditional assets.