Bitcoin Open Interest Hits All-Time High of $36.3 Billion: Here’s Why

Bitcoin futures hit an all-time high in the US dollar on Monday, hitting $36.3 billion over 500,000 BTC.

Analysts say the spike in interest is related to a smart arbitrage game by institutional traders between Bitcoin futures and spot markets.

Cash and trade

In Tuesday's newsletter, Glassnode analyst James Cheek theorized that funds would be buying coins in equal amounts through Bitcoin spot ETFs while simultaneously shorting bitcoin on the CME.

“These traders take a delta-neutral position, not exposed to Bitcoin price risk, as long and short are equal,” Cheek wrote.

This technique is commonly known as “cash and commodity trading” and is used by traders whenever there is a large premium between commodity futures and spot prices.

This is often the case with Bitcoin, where perpetual swap traders are currently willing to pay a 10% premium for shorts for the chance to be long Bitcoin.

At the time of checkout, Bitcoin was trading at $68,400 and the December 2024 futures contract was trading at $73,200. With this premium cash-and-carry strategy, users can effectively earn a 6.4% annual yield, albeit risk-free.

“Unless the trader makes a serious error in their collateral management, it is very likely that these positions are at risk of margin calls or liquidation,” Cheek wrote.

Arbitrage traders in Bitcoin

Since the beginning of the year, Bitcoin futures open interest has grown by 21% (92,000 BTC) against Bitcoin and 100% against USD. Much of the explosive growth occurred in the CME – the US-based home of institutional futures traders.

From a Czech perspective, this explains why Bitcoin has seen relatively little price volatility in recent weeks, despite an estimated inflow of 25,000 BTC last week. While cash and carry trading has been available to crypto-native companies for years, Bitcoin ETFs have made it compelling for new investors to take advantage of.

Czech says the impact of cash and trade on boosting or suppressing Bitcoin's value is “minimal.” However, users of the strategy add depth to the market and move the spot and futures markets closer together.

“What we really need to get the market moving again is strong pressure from HODLers and existing sell-side crowding out of arbitrage demand,” he concluded.