Record $7.4B Bitcoin futures open interest shows pros still expect $20K BTC

Published at: Nov. 26, 2020

The Bitcoin (BTC) price failed to blast through the $20,000 level this week, but multiple records related to volume and open interest were made on the way up to $19,484. One notable achievement was the open interest on aggregated futures contracts reaching $7.4 billion at derivatives exchanges. 

As depicted above, there has been a 110% increase over the past six months, and it is also worth noting that the Chicago Mercantile Exchange now holds over $1.1 billion of these contracts. This data is indisputable evidence of the growing institutional participation in BTC markets.

Volume soared to new highs, will BTC price follow?

The total cryptocurrency market volume also reached a record high on Nov. 24. Some investors might infer that this is a bullish event, but it’s important to remember that every trade has a buyer and a seller. Therefore, how can the entry of large sellers be deemed as bullish?

The total volume on every spot exchange reached $285 billion this week but there is always the possibility that some of these exchanges may have inflated their volumes. Despite this, $285 billion represents an 11% increase compared to the March 13 peak.

Bitcoin options markets also established a new open interest high yesterday. These are the contracts that a buyer pays upfront for either buying (calls) or selling (puts) at a predetermined price in the future.

Take notice how BTC options current $5 billion open interest represents a 316% increase from the $1.2 billion level just six months ago. Even though this includes both call and put options, this impressive liquidity increase is a positive event.

Options open interest deserves special attention

Higher open interest tends to draw attention to new arbitrage desks and open doors for larger institutional clients. Still, to better assess how professional traders are pricing to continue the current bull run, one should analyze the options 25% delta skew.

A positive 25% delta skew indicates put (sell) options cost more than similar call (buy) options, thus indicating bearish sentiment. On the other hand, a negative skew suggests bullishness.

The above chart shows that the Nov. 24 figure at -27.5% virtually matches its all-time low. Indisputably, this is an extremely bullish condition and the data indicates that options traders are unwilling to sell upside protection.

Therefore, even though the $20,000 level has yet to be broken, there is enough reason to celebrate a healthy market with no signs of excessive leverage or diminished investor interest.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.

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