Bitcoin Futures Interest on the Rise, Will the Rally Last?

Bitcoin is in a state of euphoria. Driven by growing enthusiasm from professional investors, bitcoin has just surpassed the $44,000 mark, dangerously approaching its all-time high set just one year ago. A telltale sign is the explosion in the volume of futures contracts traded on dedicated platforms. Here’s the explanation.

The interest in Bitcoin has increased tenfold in a few weeks

It’s an unmistakable sign. Within 30 days, the open interest (which is the volume of active futures contracts) in bitcoin has skyrocketed on the Chicago Mercantile Exchange (CME).

The CME, the world’s leading derivatives market, saw its open interest increase from $3.63 billion to $5.20 billion over the period. That’s a whopping 43% increase in one month! This rivals the historical peak of $5.45 billion reached in October 2021.

This explosion of speculative interest in bitcoin is reminiscent of the previous bull run. Between October and November 2021, open interest had gone from $1.46 billion to $5.45 billion, a tripling in three weeks. During the same period, the price of bitcoin had literally soared, from $45,000 to $68,000.

So, is this resurgence of buying fever the signal that the market is getting ready to take off again? 

Conflicting signals

It’s hard to say. While the speculative appetite for bitcoin certainly seems to be back, it is still too early to know the precise positioning of investors. On derivative markets, it is worth noting that it’s possible to bet on both price increases (by buying futures contracts or call options) and decreases (through short sales).

According to the latest report published by the CME, the large players on the platform were still predominantly positioned bearishly at the end of November (20,724 short contracts against 18,979 long). But the situation may have changed since then. 

“What we cannot see at the moment, is whether these big players have switched from a net selling to a buying stance,” analyzes Tony Sycamore, expert at IG Australia. “If the market became extremely long, we could fear a sharp reversal in prices.”

Bitcoin: Can the Party Last?

Because the current rally seems to respond to more than just speculative frenzy. According to our expert, the resurgence of bitcoin is closely linked to changes in the macroeconomic environment.

“It’s no longer just a matter of ETFs or halving. Bitcoin is starting to take off autonomously,” estimates Tony Sycamore. In the background, the prospect of a monetary easing by the Fed in 2023 makes cryptocurrencies particularly attractive to investors.

Another unmistakable sign: the CME has just surpassed Binance in terms of open interest. Proof that traditional financial institutions are starting to adopt the leading cryptocurrency.

Admittedly, not everyone is betting on a lasting rally. A potential approval of spot bitcoin ETFs by the SEC at the beginning of 2023 could trigger a “sell the news” movement. But for now, nothing seems to be able to stop the climb of bitcoin. The celebration could last awhile yet…