The price of Bitcoin (BTC) saw an increase of 8% from October 14 to October 15, marking a total rise of 11.5% over the last 30 days. Bitcoin is currently outperforming the S&P 500, which only rose by 3.8% during the same timeframe.
Nevertheless, some traders express concern that the rapid surge in the demand for Bitcoin leverage may introduce potential risks.
Increase in Bitcoin Futures Demand Reaches Highest Point Since 2023
The total open interest in Bitcoin futures — an indicator of the number of BTC futures contracts — suggests a growing interest in leverage, causing some apprehension among investors. Elevated open interest may heighten the risk of cascading liquidations triggered by sudden price shifts, prompting traders to expect increased volatility.
Volatility often serves as a backward-looking signal, where traders typically await substantial price movements before entering new positions. This delayed reaction can account for the surge in leverage usage as participants gain confidence from past price activity.
Aggregate open interest in Bitcoin futures, BTC. Source: CoinGlass
Current data indicates that the total volume of Bitcoin futures contracts hit 566,270 on October 15, the highest level since January 2023. In monetary terms, the open interest is valued at $38 billion, just 2.5% shy of its peak recorded on March 28, 2024. This clearly reflects a growing demand for leverage through BTC derivatives.
Given Bitcoin’s robust performance, it’s no surprise that investors are increasing their exposure via derivatives contracts. Furthermore, the recent net inflow of $810 million into US-listed Bitcoin spot exchange-traded funds (ETFs) from October 11 to 14 has further bolstered bullish sentiment and demonstrated rising institutional interest.
In this environment, investors often interpret the increase in demand for Bitcoin futures as a sign of increasing optimism. However, it’s vital to recognize that each derivatives contract necessitates both a buyer and a seller. Analyzing whether this recent pressure comes from buyer leverage (longs) or seller leverage (shorts) requires a close look at the Bitcoin futures premium.
Typically, monthly Bitcoin futures come with a cost due to their longer settlement periods, as sellers usually demand an annualized premium of 5% to 10% as compensation for the wait.
Annualized premium of Bitcoin futures. Source: TradingView
On the morning of October 15, the Bitcoin futures premium peaked at 10% when Bitcoin’s price surged to $67,885. However, this indicator did not surpass the threshold indicative of a bullish market. Essentially, despite a brief uptick in demand from leveraged longs, the overall market structure for Bitcoin remains relatively even between bullish and bearish sentiments.
Related: Crypto market matured ‘dramatically’ in 2024: Coinbase
This data does not eliminate the possibility of excessive leverage from either side, which could lead to liquidations. However, with Bitcoin’s price experiencing an 8.6% fluctuation on October 15 and less than $70 million in BTC futures positions being liquidated forcefully, it suggests that traders are being cautious with their leverage use.
Thus, the risk of cascading liquidations in the near term appears to be relatively low, despite the rise in open interest for BTC futures.
This article is intended for general informational purposes only and should not be considered as legal or investment advice. The opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.
