The rapid growth in demand for Bitcoin leverage could pose risks.
Bitcoin futures demand reaches highest peak since 2023
The total open interest (OI) of Bitcoin futures contracts - a measure of the total number of existing Bitcoin futures contracts - shows a strong increase in demand for leverage, causing concern among many investors. High open interest could increase the risk of continuous liquidations during sudden price swings, leading traders to predict further increases in market volatility.
Data shows that the number of Bitcoin futures contracts reached 566,270 on October 15, the highest level since January 2023. In US dollar terms, the current open interest has reached 38 billion US dollars, which is slightly lower than the historical peak on March 28. In 2024, the demand for leverage through BTC derivatives has increased significantly.
Given Bitcoin's strong performance, it is understandable that Bitcoin investors are increasing their positions through derivatives contracts. In addition, from October 11 to 14, U.S.-listed Bitcoin spot ETFs saw net inflows of $810 million, boosting bullish sentiment and indicating growing interest in institutional positions.
Against this backdrop, investors often view increased demand for Bitcoin futures as a sign of optimism. However, it is important to remember that every derivative contract requires a buyer and a seller. In order to determine whether the recent pressure is coming from leveraged demand from buyers (longs) or sellers (shorts), it is necessary to look at the Bitcoin futures price spread.
Monthly bitcoin futures contracts typically incur costs due to long settlement times, with sellers typically demanding an annualized spread of 5% to 10% to compensate for those delays.
On October 15, the Bitcoin futures spread reached 10%, and the Bitcoin price soared to $67,885, but the indicator has not yet broken the threshold of a bull market. In other words, despite the sudden increase in buyers' demand for leverage, the overall market structure of Bitcoin remains balanced between buyers and sellers.
Even so, the data does not rule out the possibility that some traders may use excessive leverage, leading to liquidations. However, the 8.6% swing in Bitcoin prices on Oct. 15, which forced derivatives exchanges to close less than $70 million in futures positions, suggests that traders are carefully managing leverage.
Therefore, despite the rising open interest in Bitcoin futures, the likelihood of large-scale liquidations in the short term remains relatively low.
End of the article
The strong growth in open interest in Bitcoin futures and the rise in Bitcoin prices indicate that optimism is spreading among the investor community, especially as leverage demand has reached its highest point last year. Despite positive signs in the market, investors still need to be cautious about the potential risks of using excessive leverage, which may lead to continuous liquidation when prices fluctuate violently.
With the increase in funds flowing into spot Bitcoin ETFs, especially from large institutions, it can be seen that Bitcoin has appreciated greatly and continues to attract market attention.
