The data shows that the Bitcoin price drops to USD 1 billion days after the open interest of BTC futures


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There was a time when the BitMEX derivatives exchange ruled over other exchanges and the company held a 50% market share through July 2019. Because of this, traders closely watched every BitMEX related indicator, including the open funding rate, interest and base.

Open Interest measures the total number of contracts held by market participants. As the number increases, so does the potential size of the liquidations. A $ 1,400 crash occurred on August 2 when futures contracts worth $ 1 billion were forcibly closed due to insufficient margins.

While there is no such thing as a magic number, traders tend to get shaky as the open interest is close to $ 1 billion, creating what some traders refer to as the BitMEX ghost. This became evident in the second half of 2019, when there were massive Bitcoin price crashes on seven separate occasions, with open interest exceeding $ 1 billion.

The perceived risk associated with high open interest rates depends on how liquid the underlying is. In the third quarter of 2019, the regular volume of Bitcoin on spot exchanges averaged $ 2.4 billion per day. Thus, a single contract that totaled 42% of Bitcoin’s volume seemed sizeable enough.

Bitcoin Price vs. BitMEX Perpetual Open Interest, USD. Source: TradingView

As the graph above shows, there is little doubt that open interest near $ 1 billion coincided with relevant price crashes from July to September. It’s worth noting that a significant number of contracts cannot be considered bullish or bearish.

The second half of 2019 was mostly bearish

The second half of 2019 was quite difficult for cryptocurrencies, and as most investors will remember, even President Trump publicly beat up Bitcoin, according to Cointelegraph. All of this happened while US Treasury Secretary Steven Mnuchin was calling for additional regulation and oversight for the sector.

Aggregate Bitcoin Futures Open Interest on Nov 2019, USD. Source: Skew

The graphic above shows in much more detail how relevant BitMEX’s 40% market share was back then. A single exchange held an open interest equal to half of Bitcoin’s daily spot volume.

Fast forward to 2020, and BitMEX has been dethroned from OKEx, where open positions on perpetual and fixed month futures exceeded $ 1 billion on July 25th.

Aggregate Bitcoin Futures Open Interest, USD. Source: Skew

The remaining competitors continued to build their stake, but only recently did the Chicago Mercantile Exchange (CME), Binance and Bybit break the $ 1 billion psychological barrier.

Today’s market is slightly similar to 2019, but with less risk

Oddly enough, this happened on November 20, just four days before the 16% crash to $ 16,334. Total open positions in futures as of September 2019 were $ 3 billion to put things in perspective. This time four exchanges broke the $ 1 billion mark.

Although open interest in futures rose to $ 7.4 billion, the average daily volume on regular cash exchanges also increased, where the figure is now $ 3.5 billion. Hence, a single exchange with an open stake of $ 1 billion shouldn’t raise eyebrows in the same way it did in 2019, unlike last year.

To sum up, the markets have grown and developed to the extent that the BitMEX spirit has disappeared. However, it could have been replaced by a similar phenomenon that occurs when four exchanges cross the $ 1 billion open interest mark for futures.

Regardless of this, one should watch such an indicator closely from now on, as these four exchanges have replaced BitMEX as the market leader. Binance, CME, OKEx and Bybit together hold more than half of the open positions in futures. While such a coincidence has only happened once, it actually mimics the $ 1 billion effect seen in the past.

The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You should do your own research when making a decision.