Open interest (OI) for bitcoin (BTC) futures trading on the Chicago Mercantile Exchange (CME) soared to a new record high on Thursday as BTC reclaimed its five-month high of $58,550 on Bitstamp.
According to data provided by ByBt.com, the total number of outstanding derivatives contracts on CME Group’s bitcoin futures market reached $3.22 billion, just $40 million less than the record high logged in February 2021. Still, OI turned out to be more than that. At the peak of the price of bitcoin in mid-April.
In detail, the bitcoin futures OI on the CME was $3.02 billion on April 14, the day the BTC price reached around $65,000. But on Thursday, the OI was up over 6% compared to readings from mid-April, even as BTC price faltered within the $57,000-$58,550 price range.
Traders often use the OI as an indicator to confirm trends in both the derivatives and spot markets. For example, an increasing number of outstanding derivatives contracts are interpreted as new money coming into the market, regardless of the bias.
At the same time, in the case of bitcoin, increasing open interest in the futures market indicates that accredited investors are looking to increase investment in BTC.
Commercial Sector Increases Bitcoin Futures Exposure
The latest OI readings suggest that more institutional capital is entering the bitcoin market. As a result, investors seem more confident to open new positions in the $50,000-$58,000 price range, with CME volume trending higher over the past seven days.
Analysts believe that there is a corresponding increase in OI, volume and price, indicating fresh buying in the futures market. This puts the underlying asset in a better position to continue its uptrend. So it seems, bitcoin is going through a similar upside trend.
Prominent evidence for the uptrend in bitcoin comes from the Commodity Futures Trading Commission’s record released on October 5. It notes that the commercial sector – which includes corporate hedgers – has intensified their bitcoin futures purchases; He now has a net position of over 10,000 BTC.
At the same time, however, hedge funds and retail investors have emerged as a net loser in the bitcoin futures market. Still, this could be their strategy to offset long positions in other places such as the spot market.
This is mainly due to the higher annual premium available on CME bitcoin futures prices compared to the spot market. In recent days, the CME bitcoin futures price has regularly been trading 15% above the BTC spot price, compared to an average of around 7.7% in the first nine months of 2021.
Macro Fundamentals Behind the Bitcoin Resurgence
The latest round of buying in the bitcoin spot market also appeared in the wake of statements from US regulators.
For example, Securities and Exchange Commission (SEC) Chairman Gary Gensler and Federal Reserve Chairman Jerome Powell discouraged the ban on bitcoin. Meanwhile, the growing prospect of bitcoin ETF approval by the SEC has also fueled the “buy rumour” narrative.
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Investors also sought to invest in the bitcoin market as consumer prices in the US continued to rise.
Inflation in September stood at 5.4 per cent, the highest in 13 years.
Bitcoin just crossed $58,000 which is the highest price since May this year.
Bitcoin continues to serve as the best inflation hedge in the world.
— Pomp (@APompliano) 14 October 2021
JPMorgan Chase noted in its recent report that high inflation has prompted institutional investors to invest in bitcoin, with some even viewing the cryptocurrency as a better haven asset than gold. In another report published in January 2021, the US banking giant predicted the price of BTC to reach $140,000 in the long term.
“The gold rush as an ‘alternative’ currency means there is a huge upside for bitcoin in the long term,” it noted.
“A convergence in volatility between bitcoin and gold is unlikely to happen quickly and in our mind is a multi-year process. This implies that the above $146,000 theoretical bitcoin price target should be considered a long-term target, and thus a volatile one. Price target for this year.”
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