Last month, the financial giant BlackRock rekindled enthusiasm in the cryptocurrency market by filing an application for a bitcoin spot exchange-traded fund (ETF). This strategic maneuver has since positively reflected in the value of Bitcoin and its related investment mechanisms. Nonetheless, among traders in the perpetual futures market associated with Bitcoin, there seems to be a reluctance towards high-risk ventures.
Statistics sourced from Glassnode and Blockware Solutions reveal that the ratio of open interest in Bitcoin perpetual futures corresponding to Bitcoin’s market cap has oscillated between 1.5% and 1.7% in the past month. This indicates a significant drop from the all-time high of 2.6% witnessed in the previous year around September.
As a result, this implies that Bitcoin futures traders have maintained a consistent risk appetite, even after Bitcoin managed to sustain a value of $30,000 over the course of the last month. The subdued ratio of open interest to market cap alludes to the possibility of spot prices having a substantial influence in boosting the price in the near future, while supply gradually shrinks as long-term holders acquire more Bitcoins.
Despite the situation, it’s conceivable that traders don’t perceive a Bitcoin spot ETF as a revolutionary investment tool. Alternatively, the lingering regulatory uncertainties could potentially be a source of concern, contributing to apprehensions about how it could depreciate market valuations.
Perpetuals are futures contracts that have no expiration date. Open interest denotes the monetary value enclosed within the number of active contracts. Traders employ leverage to initiate trades that exceed their deposited margin of coins or money at the exchange. It’s a high-stakes game, as leverage can both amplify profits and inflate losses, making traders vulnerable to liquidations – forced dissolution of bullish long or bearish short positions due to a lack of margin. Consequently, the market becomes susceptible to increased volatility as leverage intensifies.
Another method to monitor market leverage is by comparing the open interest to the value of Bitcoin stored in derivative exchange wallet accounts. The resulting estimated leverage ratio, first popularized by South Korea-based CryptoQuant, has remained virtually unaltered since June 20. This could be indicative of the average trader exercising prudence and playing it safe in the current market climate.
A low degree of leverage typically translates into decreased price volatility. In the past month, Bitcoin appears to have plateaued, with prices wavering between $29,500 to $32,000. As per the latest data from CoinDesk, Bitcoin traded at $29,790, clocking in at a 1% decrease for the day (UTC).
Source: Coindesk
