Data reveals Bitcoin price drop after open interest reaches $1 billion on BTC futures.
There used to be a phase when BitMEX exchange used to reign sovereign over the other exchanges and effectively held around 50% of market share up to July 2019. For this very reason, traders used to track every BitMEX indicator, including its open interest, funding rate, and basis.
Open interest examines the total contracts that market participants hold. The size of potential liquidations rises with the increase in figures. On 2nd August, due to the closure of futures contracts because of insufficient margins worth $1 billion, a crash of $1400 happened.
Traders seem shaky once the open interest reaches close to $1 billion, thereby creating a phenomenon that some traders term as BitMEX ghost. This became clear when during 2019, a massive Bitcoin price drop took place on seven instances as open interest topped $1 billion.
The anticipated risk that is associated with open interest is dependent on the liquidity of the assets. During the 3rd quarter of last year, Bitcoin’s average volume regarding spot exchanges was $2.4 billion/day. Thus, one contract totaling 42% Bitcoin volume appeared sizable enough.
2019’s Second Half: Bearish With Bitcoin Price Drop
2019’s second half was quite tough for cryptocurrencies and even Trump bashed Bitcoin publicly as several investors can recall. This happened due to Steve Mnuchin, Treasure Secretary, US. Demanded additional oversight and regulation for the sector.
BitMEX’s market share of 40% was very relevant back then. One exchange held open interests equivalent to almost half of the spot volume of Bitcoin.
However, in 2020, BitMEX was defeated by OKEx, where total interest on fixed-month and perpetual futures crossed $1 billion(July 25).
The rest of the contenders grew their share, recently, Binance, Bybit, and CME broke the psychological barrier of $1 billion.
Today’s Market Same As 2019, But Has Lesser Risk
Unusually, this situation occurred on Nov. 20, which is four days before the crash of 16% to $16,334.The total open interest on futures as of Sept.2019, totaling $3 billion put matters in perspective. That time around, a total of four exchanges broke the barrier of $1 billion.
Although the open interest on futures reached $7.4 billion, the average volume regarding spot exchanges reached the figure of $3.5 billion. Therefore, unlike 2019, one exchange holding $1 billion in open-interest must not get the same attention it got in 2019,causing a massive Bitcoin price drop.
To summarize, there has been growth and development of the market to an extent where BitMEX ghost has disappeared but there can be a similar situation when four exchanges decide to cross the open interest on futures mark of $1 billion.
Regardless of this, one should closely track such a similar indicator from now, as these four exchanges replace BiTMEX as the leader of the market. Combined, CME, OKEx, Bybit, and Binance hold above half of all open interest on the futures, Although a similar coincidence has happened only once, it mimics the effect of $1 billion from the days of the past.