The price of Bitcoin (BTC) has been on a downward trend since reaching $70,300 on May 27. It is currently hovering around $67,500, marking a 4% decline in just two days. However, the support level at $66,000, which has been holding strong since May 17, is providing some reassurance to bullish investors who are not yet concerned about this correction.
The worrisome data comes from the Bitcoin derivatives market, where the number of leverage bets, known as open interest, has reached a 16-month high on May 29. This indicates that investors are shifting away from fixed-income positions and favoring the performance of Bitcoin.
The performance of Bitcoin has been influenced by macro trends, such as the S&P 500, which is only 1.2% below its all-time high. This suggests a strong stock market. Additionally, the 5-year Treasury yield has increased from 4.34% to 4.63% in the past two weeks, indicating a move away from fixed-income positions.
This shift in investor behavior was particularly notable after a weak demand at a Treasury Department auction on May 28, which led to concerns among stock investors. On May 29, the aggregate open interest for Bitcoin futures reached 516k BTC, the highest since January 2023, representing a 6% increase over the past week.
The Chicago Mercantile Exchange (CME) leads the market with a 30% share, followed by Binance with 22% and Bybit with 15%. While this high open interest indicates a bullish sentiment and a strong appetite for Bitcoin futures, it also poses a risk. If investors rely too heavily on leverage, a 10% market correction could trigger a cascade of liquidations, exacerbating the price drop. However, Bitcoin has shown resilience in the face of regulatory pressures in the United States, which has been a positive development for the market.
Positive regulatory developments, including the approval of a spot Ethereum (ETH) exchange-traded fund, the Senate’s vote to repeal the Securities and Exchange Commission’s proposed accounting rule, and Congress passing the reform allowing most cryptocurrencies to be treated as commodities and regulated by the Commodity Futures Trading Commission, have favored Bitcoin bulls.
When it comes to Bitcoin futures, the funding rate for perpetual contracts is currently at 0.35% per week, indicating a modest cost for leverage. This rate can increase to 2.4% per week during times of high optimism, reflecting increased demand for leverage. The basis rate, or futures premium, is another important metric. In a healthy market, the basis rate for Bitcoin futures typically ranges from 5% to 10% annually. Currently, the 3-month futures premium is at 14%, which is above the neutral range but not excessively high. This suggests that there is still room for additional leverage without immediate risk of liquidations.
While the growth in Bitcoin futures open interest may raise concerns about potential liquidations in a market correction, overall indicators suggest that the market is in a healthy state. The resilience of Bitcoin’s price, combined with a relatively low funding rate and a moderate futures premium, indicates that there is no immediate reason to fear the increase in open interest. Instead, it likely signals a growing institutional appetite for Bitcoin, pointing towards a potentially bullish outlook in the near future.
Please note that this article is for informational purposes only and should not be considered as legal or investment advice. The views and opinions expressed are those of the author and do not necessarily reflect the views of Cointelegraph.