Bitcoin’s open interest has recently taken a hit, dropping by $7 billion in just one month. This decline in notional open interest has coincided with a 14% decrease in the price of Bitcoin in the spot market. At first glance, this may seem like a sign that bullish bets on Bitcoin’s price have been unwound in response to the drop. However, a closer look reveals that there are still positive indicators in the market.
Despite the decrease in notional open interest, open interest in Bitcoin terms has remained steady. This, coupled with consistently positive funding rates, suggests that there is still demand for long positions in the market. Some traders have been setting fresh long positions, offsetting the unwinding of bullish bets by other market participants. This indicates that traders are still willing to take long positions, even as they implement protection strategies to navigate the uncertain market conditions.
Traders may be hopeful that once selling pressure from Mt. Gox reimbursements and miners subsides, Bitcoin could resume its upward trend. The consistent positive spread between futures and spot prices, known as basis, also points towards the potential for a breakout in the market. Additionally, activity in the spot and options market suggests an upside bias, with Bitfinex whales buying the dips and traders purchasing topside bets in the options market.
Overall, while the drop in Bitcoin’s open interest may initially seem concerning, there are still positive signs in the market. Traders are continuing to take long positions, and there is anticipation of a potential year-end rally. As macro tailwinds accumulate and selling pressure diminishes, investors may be accumulating strategic long positions while funding rates are low. This indicates that there is still optimism in the market despite the recent price drop.