The number of open positions in bitcoin futures traded on major exchanges, including Binance and the Chicago Mercantile Exchange, continues to rise, and what appears to be a proliferation of short sellers indicates a dour market mood. That may bring volatility on the higher side.
Open interest, or the number of futures contracts traded but not squared off with an offsetting position, rose to 397,873.36 BTC on Tuesday, reaching the highest tally since May 18, according to data from the blockchain analytics firm Glassnode. The dollar value of the number of contracts open remained flat at around $12 billion.
When measured in kind, the metric has risen by more than 100,000 BTC since late May. According to experts, the uptick in open interest indicates traders have been opening short or sell positions amid flat-to-negative price action in the cryptocurrency. Bitcoin has mainly traded in the $30,000 to $40,000 range in the past two months, barring a couple of short-lived dips to $29,000.
“In my opinion, it’s mostly short futures, given the persistent negative funding rates in perpetual markets over past few weeks as well as futures markets trading in backwardation,” Shiliang Tang, chief investment officer of LedgerPrime, a $130 million crypto hedge fund, told CoinDesk.
The perpetual market has consistently seen negative rates since mid-May.
Calculated every eight hours, the funding rate refers to the cost of holding long/short positions in the bitcoin perpetuals (futures with no expiry) market. The metric is used by exchanges offering perpetuals to balance the market and guide perpetual prices toward the spot price.
A positive funding rate means longs are paying shorts to keep the position open, and the market is skewed bullish. Meanwhile, a negative funding rate implies a bearish market positioning.