The number of open positions on futures contracts bitcoin traded on major exchanges, including Binance and the Chicago Mercantile Exchange, continues to 'rise, and what appears to be a proliferation of vendorsoverdraft indicates a gloomy market mood. This can lead to higher volatility.

Open interest, or number of futures contracts traded but not tied with an offsetting position, rose to 397,873.36 BTC on Tuesday, reaching the highest count since on May 18, according to data from blockchain analytics firm Glassnode. The dollar value of the number of open contracts remained stable at around $ 12 billion.

Bitcoin futures open interest in terms of BTC
Source: Glassnode

When measured in kind, the metric has increased by over 100,000 BTC since the end of May. According to experts, the rise in open interest indicates that traders have opened short or short positions in a contextof flat-to-n price action.negative in cryptocurrency. Bitcoin has mostly traded in the $ 30,000- $ 40,000 range over the past two months, with the exception of a few short-lived dips to $ 29,000.

"In my opinion, these are mostly short futures, given the persistent negative funding rates in perpetual markets over the past few weeks as well as the futures markets traded on backwardation "Shiliang Tang, chief investment officer of LedgerPrime, a $ 130 million crypto hedge fund, told.

The perpetual market has consistently seen negative rates since mid-May.

Perpetual funding rate Bitcoin futures
Source: Glassnode

CCalculated every eight hours, the funding rate refers to the cost of holding long / short positions in the perpetual bitcoin market (futures without expiration). The metric is used by exchanges offering perpetuals to balance the market and guide perpetual prices towards the spot price.

A positive finance rate means buyers are paying the shorts to keep the position open, and the market is bullish. Meanwhile, a negative funding rate implies bearish market positioning.

The three-month basis, or the difference between the three-month futures price and the spot price, which recently turned negative, has turned into what This is called the offset, a sign of bearish sentiment among futures traders.

Bitcoin forward annualized over three rolling months (futures minus spot)
Source: Weekly note from Arcane Research

"Institutional investors seem very cautious at the moment and in general appear to be reducing their risks ", a declared Arcane Research dans a weekly research note published Tuesday. “Futures premiums in the unregulated offshore derivatives market are also trending towards zero, with FTX still trading at a slight premium.

One question is whether the rise in open interest results from management-independent arbitrage strategies, which involves buying bitcoins in the spot market against a short position in the futures market. The strategy seeks to take advantage of the term premium, which evaporates as expiration approaches and converges with the spot price on the day of settlement, creating relatively low risk returns for the carry trader.

However, the usual cash-and-carry strategy has lost its shine with single-digit or negative premiums (offset) against the record base of40% mid-April.

Some traders anticipating a bullish rally and rising futures premium may have used a “reverse cash-and-carry” strategy by selling bitcoins in the spot market against a long futures position.

"The increase in reverse cash-and-carry positions could have sparked open interest, but I doubt that was the main one engine, "Rahul Rai, managing partner at Gamma Point Capitale, said. "So overall it looks like there is decent short-term interest at these levels. " Gamma Point Capital operates a market neutral fund.

LedgerPrime 's Tang said reverse cash-and-carry strategies look quite unattractive with single-digit annualized premiums. Additionally, Tang pointed out the low rates loan offered by theloan-borrowing as evidence of low demand for bitcoin borrowing and overdraft compared to a long position in the futures market.

All things considered, the futures market is mostly bearish, leaving the door open for strong corrective increases in the price of bitcoin. When leverage is skewed to the bearish side, an upward movement often results in the forced closing of short positions (trades oppose shorts). This, in turn, puts upward pressure on the price of the cryptocurrency, leading to exaggerated price movements. "A rally could wind them up, " Rai said.

Bitcoin is currently trading at $ 31,400, or 5% winning on the day.

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