Bitcoin Futures Open Interest Hits 16-Month High: Is $70,000 Given?

Bitcoin (BTC) price has declined since testing $70,300 on May 27 and is currently near $67,500, down 4% in two days. However, the $66,000 support has held firm since May 17, providing some reassurance to bulls who have yet to be rattled by this correction.

The number of BTC-equivalent leverage bets, known as open interest, rose to a 16-month high on May 29, according to data from Bitcoin derivatives markets.

Investors are moving away from fixed income positions, supporting the performance of Bitcoin

Macro trends have influenced Bitcoin's performance as the S&P 500 is currently 1.2% below its high of 5,342 since May 23, indicating a strong stock market. Additionally, the 5-year Treasury yield rose to 4.63% from 4.34% two weeks ago, suggesting traders are moving away from fixed income positions.

This change has led to a rise in the stock investors can get, especially following weak demand in the May 28 Treasury Department auction.

On May 29, total Bitcoin futures open interest reached 516k BTC, the highest since January 2023 and a 6% increase over the previous week.

Chicago Mercantile Exchange (CME) leads the market with a 30 percent share, followed by Binance with 22 percent and Bybit with 15 percent. Large open interest equivalent to $34.8 billion is a double-edged sword for the market.

High open interest can indicate bullish sentiment as it indicates high appetite for Bitcoin futures. However, if bulls are overconfident in leverage, a typical 10% market correction will exacerbate price falls. Since the easing of regulatory pressures in the United States, the price of Bitcoin has shown resilience in particular.

Positive regulatory developments include the approval of the spot Ethereum (ETH) exchange-traded fund, the Securities and Exchange Commission's vote to repeal the proposed SAB 121 accounting rule, and Congress passing FIT 21 amendments that will allow most crypto to be treated as commodities. and administered by the Commodity Futures Trading Commission. These factors collectively support the Bitcoin bulls.

The future of Bitcoin reflects some optimism

Unlike traditional monthly futures, fixed contracts do not have an expiration date. They are designed to closely track the value of the property using the funding rate method. When the fund rate is positive, long (buy) position holders pay short (sell) position holders and vice versa.

Currently, funding for perpetual futures is at 0.35% per week, which indicates a modest cost of use. This rate may rise to 2.4% per week during periods of high optimism, indicating an increase in demand for capacity.

The base rate, or futures premium, is another important parameter. Typically, in a healthy market, the base rate for Bitcoin futures ranges from 5% to 10% annually. This premium occurs because futures contracts have future expiration dates and traders are willing to pay more to lock in a price.

The 3-month futures premium is 14%, which is above the neutral range but not excessively high. It suggests that there is still room for additional benefits if there is no risk of immediate liquid removal.

Related: Bitcoin ‘Diamond Hands' Cut $73.8K in Sales by 50% – Study

A rally above $70,000 is possible, but not necessarily driven by futures markets.

While the growth in Bitcoin futures open interest may raise concerns about potential liquidity in a market correction, overall indicators suggest that the market is in a healthy state.

The resilience of Bitcoin's price amid easing regulatory pressures, combined with relatively low funding rates and modest futures premiums, suggests there is no immediate reason to fear a rise in open interest. Instead, it probably shows higher institutional appetite for Bitcoin, pointing to a bullish outlook in the near term.

This article is not intended for general information purposes and should not be construed as legal or investment advice. The views, ideas and opinions expressed herein are solely those of the author and do not necessarily represent the views and opinions of Cointelegraph.