Interest Surges in Bitcoin Speculation, But It Might Be Bearish

A new record has been reached in the trading of a key speculative tool in cryptocurrency markets: the bitcoin perpetual swap.

Open interest in the “perps,” as they are known, has spiked to an all-time high of 450,000 BTC, according to data from Arcane Research. Perpetual swaps are an innovation in crypto markets that offer leverage to speculative traders – similar to futures contracts in traditional markets, but without expiration dates.

One caveat for bitcoin bulls is that, at least in the current market, the data point might be more worrisome than something to cheer about.

The open interest, or OI – the total outstanding amount of the trading contracts – has been on a vertical climb since the Terra blockchain’s collapse in May. Arcane Research wrote in a report that open interest in BTC perps is always evenly distributed between longs and shorts.

Arcane’s report included a chart showing that bitcoin perpetual “funding rates” – what traders pay for leverage on the contracts – were negative for most of September, indicating that demand from speculative bearish traders outweighed demand from the bulls. But recently, the chart shows, the funding rate has flipped into positive territory. Arcane cited funding rates on the crypto exchanges Binance and Bybit.

“The latest push topped with neutral funding rates on Binance suggests that short-term optimism by bulls has contributed to the recent spike,” the Arcane analysts wrote. “Be aware of any breakouts of BTC’s trading range. This clogged-up open interest is likely to exaggerate any directional move as it gets unclogged.”

The BTC-denominated open interest in perpetuals since Oct. 1 across all platforms increased by the equivalent of more than 60,000 BTC, according to the report.

“This shows more positioning/engagement from investors,” said Florian Giovannacci, head of trading for Covario, a prime brokerage for digital assets. Giovannacci noted that this isn’t a sign of bullish or bearish positioning, though, and that bitcoin basis levels are a better indicator for that.

The bitcoin basis level is the difference between the future contract and the spot price.

Bitcoin’s annualized basis for December expiry is sitting at around 0.3%, according to data from crypto options exchange Deribit.

“Bitcoin basis levels still remain fairly flat, making it difficult to draw directional conclusions if the basis does not move,” he said.

“The option market is more revealing, with a more bullish positioning seen in higher demand for upside strikes and a skew (difference of implied volatility between downside puts and upside calls) under pressure,” Giovannacci said.