The number of open positions in futures can be seen as an indicator of market liquidity, however, observing that Bitcoin’s open positions since the beginning of 2024 have followed the trend of the currency price. Can we find clues through on-chain data?
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ToggleBitcoin’s open position this year is highly correlated with the currency price
On-chain data shows that cash-margined Bitcoin futures open interest (OI) has been extremely volatile over the past few months. It can be seen from the chart that the trend of Bitcoin futures open interest is highly correlated with the spot price.
In early January 2024, OI for cash margin futures on all exchanges started at approximately 280,000 BTC and rose steadily, peaking at around 340,000 BTC in mid-March. Following this peak, Bitcoin experienced a significant decline and bottomed near 280,000 BTC in early May. This is related to Bitcoin’s spot price fluctuations as it reflects fluctuations in the futures market. After the April halving, open interest rose again and remained above 300,000 BTC. It shows that market participants are rekindling their interest in trading and preparing for the coming market.
In the medium term, everyone will still go his own way.
When we zoom out and look at the mid-term data, we can find that from January 2021 to 2023, the number of Bitcoin’s cash margin open positions has a more significant upward trend, reaching a peak of 380,000 BTC at the end of 2022 .
This time period covers the last bull market and the subsequent bear market, but the overall trend in open interest is still upward. Especially from the end of 2023 to the beginning of 2024, the number of open contracts increased significantly, reaching more than 350,000 BTC. This suggests that open interest has taken a different path from Bitcoin’s price on medium-term data. The halving event is generally considered to have a significant impact on Bitcoin price, so market participants increase their positioning, reflecting expectations of a potential price increase.
How to view open interest and market sentiment
Changes in open interest can also be viewed as an indicator of market sentiment. During periods of price volatility, an increase in open interest usually means more market participants are taking trades and may indicate increased bullish sentiment in the market. Conversely, a decrease in open interest could signal a wait-and-see attitude among market participants or increased uncertainty about future price movements.
