Open interest in bitcoin derivatives are piling up
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The futures markets are seeing a healthy influx of positions betting on the upcoming price of bitcoin.
Why it matters: More players in the market means more efficient price discovery. But it also means more people are seeing the asset as worthy of putting bets on — long or short.
By the numbers: Open interest is a measure of how many people have bought into futures or options products.
- Since launching its bitcoin futures product in 2017, The Chicago Mercantile Exchange (CME) has hit a record level of open interest in recent days, with 20,000 contracts, or effectively $3.4 billion in notional exposure (each contract is 5 BTC), CME's Giovanni Vicioso tells Axios.
- Big holders have also seen a nice bump over the last year, he said.
- Open interest on Deribit, the leading market for bitcoin options in the world, is not quite at record levels, but it's reached very high, with $20 billion across its options and futures products.
Be smart: Another key metric is volume. That is, how much the instruments are changing hands.
- While CME has hit a record in open interest, it saw higher volume at previous times, such as in the heyday of the bull market or right around the FTX collapse.
There are many reasons to buy futures, but one of the biggest might be to hedge other positions (not necessarily in crypto).
- Qualitatively, Vicioso says he has seen a shift in how big customers talk about these products. It's no longer "what is it?" It's about the kind of positions they can take, the strategies they complement.
What they're saying: "We are coming out of an incredibly non-volatile time. Statistically, depending on how you measure it, it was three standards of deviation below the mean," Dave Weisberger of CoinRoutes, a firm that makes software that allows traders to interact with lots of crypto markets at once, told Axios.
- There's always money to be made when prices are moving in any direction, but when there's little movement, there's little interest from traders.
State of play: "What you see now is calls are relatively more expensive than puts, which means the market is out of balance." Luuk Strijers of Deribit tells Axios.
- Out of balance in a bullish direction, that is.
Stay sharp: Tomorrow is the last Friday of the month, which means that lots of contracts will close (though many may be rolled over).
- "When all of those markets expire, that's unleashing the market a certain bit," Strijers says.
- That is, it can be a weird day for the unsophisticated investor to get in. If market makers get surprised, they will have to make moves to cover their positions and that can accelerate price moves.
The bottom line: Rising open interest means that more people are playing in the space, but there's no neat explanation of the cause.
- "Anyone who tells you they know what it is is lying to you," Weisberger said.
Go deeper: CME Group to offer Ethereum options trading ahead of The Merge
