Bitcoin traders predict volatility as BTC futures rise above $36 billion
Bitcoin investors always expect and enjoy volatility, but less so when the price pump undergoes a sharp correction that triggers forced liquidations in futures contracts and amplifies the lower price movement.
Bitcoin (BTC) futures play an important role as they can be used by traders; Therefore, the larger this market, the greater the price impact.
Cumulative Bitcoin futures open interest hit $36 billion on March 21, up from $30 billion two weeks ago. Moreover, market leader Chicago Mercantile Exchange (CME) has outperformed U.S. spot bitcoin exchange-traded funds (ETFs) since its launch to achieve open interest of $11.9 billion.
Bitcoin volatility has increased since the spot ETF launched in the US.
Despite the initial success of spot ETFs, some analysts expect volatility to drop as these instruments trade on average more than $3 billion a day. However, recent data points to the opposite as Bitcoin's volatility has increased over the past four weeks.
Bitcoin's 30-day volatility surged over 80%, marking the highest level in 15 months. For comparison, the volatility of the S&P 500 index stands at 13%, while the WTI oil futures stand at 23%. Even stocks traditionally considered volatile in the market, such as Nvidia and Unity Software, currently show volatility of 72% and 59%, respectively.
Examples of volatility in Bitcoin include a 10% correction on March 19 to a low of $60,795, followed by a 12% gain on March 20. This unexpected price swing resulted in a forced liquidation of $375 million in BTC futures contracts over two days. While this activity may not directly affect holders, it certainly affects the bull run and, more significantly, the broader market's perception of Bitcoin risk.
The Bitcoin futures market, like any derivatives instrument, is a double-edged sword: it enables rich bullish and bearish betting. While factors that significantly short BTC futures appear to hurt Bitcoin's price, ultimately, the resulting trade must be adjusted by buying the contract or forcing liquidation.
Therefore, if the price of Bitcoin is suppressed by investors using supported shorts, one should anticipate that the movement will eventually reverse, leading to short-term buying pressure. This partly explains why higher futures open interest is associated with increased volatility.
Are Bitcoin Futures Behind BTC Price “Manipulation”?
Some analysts attribute the increased volatility to overexploitation, while others say it is simply “manipulative.”
For example, X user Amit Kukreja marketers have been following long and short pants. Shares directly related to the sector, such as miner CleanSpark, said they gained 7% on a day when the price of bitcoin fell to $68,000. While assumptions may be made, it is not possible to ascertain the reasoning behind each market participant's motives.
To determine whether Bitcoin futures contracts are being used to exert negative pressure on the BTC price, monthly contract premiums should be analyzed. These are the preferred instruments of professional traders due to lack of funding rate. To compensate for the extended settlement period, sellers seek a 5% to 10% premium relative to the spot market.
Related: History of Crypto: Bitcoin – Satoshi Nakamoto's Response to the Global Financial Crisis
The BTC futures premium has maintained levels above 16% for the past three weeks, typical of bearish markets. Furthermore, the index did not decline significantly even after the 17.6% drop in Bitcoin prices between March 14 and March 20.
If anything, interest in Bitcoin futures appears to be focused more on the buy side. On the other hand, if the price of Bitcoin continues to decline, those leveraged buyers could face forced payments, leading to serious consequences due to the $36 billion in open interest.
This article does not contain investment advice or recommendations. Every investment and business activity involves risk, and readers should do their own research when making a decision.
