Shorts squeezed? BTC denominated open interest in perps blasted through 300,000 BTC prior to pump

31 May 2022

Shorts squeezed? BTC denominated open interest in perps blasted through 300,000 BTC prior to pump

We’re now five days away from half a year of funding rates at or below neutral. Meanwhile, perp OI remains bloated at near all-time highs just below 300,000 BTC.

Futures

Futures basis remains low but sees a slight growth following recent strength in bitcoin. FTX still trades at a +1% premium to the Binance futures, a deviation that has now held for nearly three weeks since the May 12th crash.

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Source: Skew

Overall, premiums remain low in the futures market, maintaining their 3-4.5% range after a slight increase early this week. This suggests no noteworthy change to the sentiment in the futures market.CME’s futures premium stays relatively erratic but sees a slight uptrend as its premium is now approaching Binance reaching its highest level since late April. This could indicate a growing appetite for bitcoin exposure among institutional traders.

Nothing new under the sun: Funding rates still at or below base line

Funding rates remain at or below neutral. We’re now five days away from half a year of funding rates at or below neutral.

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Source: Skew

Bitcoin has seen neutral funding rates on Binance since Saturday, i.e., perp prices on Binance aligned with spot markets prior to and during the strong push seen since the Saturday close. Bybit’s funding rates also reached the neutral base level of 0.01% following BTC’s strength yesterday, with the last two funding intervals on Bybit sitting at neutral levels. The neutral funding rates have held in a volatile OI environment (covered below in this article), suggesting a relatively balanced demand to long and short in the market through perps at the moment.If funding remains neutral or below neutral until June 4th, BTC perps on Bybit and Binance will reach half a year of funding rates, never surpassing the neutral 0.01% threshold, illustrating the prolonged bearish state of the market.

Shorts squeezed?

Monday evening, perp OI reached a new ATH of 307,189 BTC before plunging by 18,000 BTC as BTC surpassed $31,000.

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Source: Skew, Laevitas

The BTC denominated open interest in perps remains very high and pushed above 300,000 BTC Monday evening prior to BTC pushing above $31,000. At 21:45 CET, the BTC denominated open interest reached 307,189 BTC, a new all-time high. In the two hours that followed, the BTC denominated open interest saw a sharp 18,000 BTC fall to 288,875 BTC, suggesting a substantial short squeeze.The open interest decline was particularly pronounced on Bybit. The exchange saw a 12% decline in its open interest in the two-hour interval from 21:45 to 23:45.While open interest saw a substantial fall in these two hours, the OI has since recovered as leverage remains extremely high. The BTC denominated perp OI currently sits at 294,614 BTC, well above the 289,780 BTC we noted as a new all-time high last week.

Long/short ratio declining to Q1 territory

After surging prior to the May 12th crash, the long/short ratio on Binance’s BTCUSDT perp has declined towards the Q1 average.

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Source: Coinalyze

Binance’s most popular derivative instrument, the stablecoin denominated BTC perpetual, has seen a sharp decline in its long/short ratio.

The long/short ratio illustrates the proportion of net long and net short accounts to total accounts with positions. Each account is only counted once. A long account is defined as an account with net long exposure and vice versa.

It’s important to emphasize that the open interest in the perps is always net neutral. However, it is interesting to gauge the sentiment and current consensus trade to reflect on the state of the leveraged market. Currently, the consensus seems to be bearish, with the long/short ratio sitting at historically low levels slightly above 1. Prior to the LUNA crash, we saw a surge in the long-short ratio, climbing above 3. This has previously tended to be a decent signal of overconfidence. Hope and high leverage from retail longs were key ingredients in the large liquidation cascades last year and also this May. While a high long/short ratio has tended to foreshadow large selling pressure, a low long/short ratio of around 1 has not been as precise. We note that the long/short ratio reached an all-time low prior to the BTC peak in late March.

Bitcoin dominance in derivatives market growing

Open interest in BTC futures and perps now account for 63% of the open interest in the crypto futures market after growing from 50% in early April. This suggests that the speculative interest in alts is diminishing.

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Source: Skew, Laevitas

BTC denominated open interest in BTC perps remains high as noted above. Meanwhile, the global open interest in the crypto market as a whole has seen a sharp decline. The decline was particularly pronounced in May.Open interest in bitcoin futures now accounts for 63% of the crypto market, which is the highest BTC dominance seen since October last year. On April 4th, the BTC dominance in terms of OI bottomed at 50%.This mirrors what we see related to BTC dominance in the general market, which has also trended higher, in particular since the May 12th crash.