07 Jun 2022

Derivatives update: Open Interest plunges by 25,000 BTC from ATH during last night’s sell-off

The open interest in BTC perps continues to see new highs. Last night, OI peaked at 317,700 BTC before plunging by 25,000 in a few hours.
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Futures premiums see slight decline
Futures premiums see a slight decline as bitcoin again trades below $30,000.
Source: Skew
Offshore futures premiums have fallen by 1% in the last seven days, with FTX seeing the most noteworthy decline falling from 4.8% on June 1st to 3.16% today following BTC’s new push below $30,000. While the premiums have seen a decline, overall, the market structure remains similar to the last weeks, with FTX still trading at a premium to Binance. CME’s 3-month futures have seen a slight buoyancy since the May 12th crash with a slight consistent uptrend. This is likely caused by growing inflows to the BITO ETF contributing to lifting the futures premiums. Still, yields in CME’s futures remain compressed and trade at a discount to the offshore market. In addition, CME’s front-month futures are trading in a slight backwardation following this night's shakeout.
Funding rates plunge amid last night’s BTC sell-off
After BTC’s sell-off last night, the average funding rate of Bybit and Binance reached its second-lowest level since February 2nd.
Sources: Skew, Tradingview (Coinbase)
Funding rates plummeted following the sell-off last night, reaching the second-lowest average funding rate seen since February 2nd, only “beaten” by the plunging funding rates amid the May 12th carnage. Bybit’s funding rate was particularly impacted by last night’s leg down, reaching its lowest level since February 2nd of -0.0378%, while Binance’s funding rate reached -0.0102%, not on par with the levels from the May 12th crash.Overall, funding rates have mostly remained negative over the last seven days on both Bybit and Binance, as perps continue to lag spot. Binance’s funding rate has now remained consistently neutral to negative for six consecutive months for the first time in history, as illustrated below.
Half a year of funding rates at or below neutral levels on Binance
Source: Skew
Funding rates on Binance have now remained neutral to negative for more than six consecutive months. This consistency of neutral to negative funding rates is unprecedented in the BTC perp history. The previous record duration of premium drought lasted for 2.5 months last summer. The prolonged duration is also unheard of when assessing periods with brief stints of positive funding rates. The previous record duration of a compressed funding environment lasted for 4.7 months, from May 19th, 2021, to October 7th, 2021.
Two factors likely cause this compressed funding rate regime:
  1. The prolonged bearish sentiment.
  2. More efficient funds entering the market, taking advantage of the base neutral funding rate of 0.01% every eight hours to earn a relatively consistent yield through a cash-neutral exposure.
Open Interest plunges by 25,000 BTC during last night’s sell-off
Source: Laevitas, Tradingview (Coinbase)
The open interest in BTC perps continues to see new highs. Last night, OI peaked at 317,700 BTC before plunging by 25,000 in a few hours. The BTC denominated OI reached another all-time high Monday evening of 317,734 BTC but fell 25,000 BTC to 292,171 BTC as BTC once again plunged from $31,000 to $29,000.
Source: Laevitas
The most substantial decline in open interest amid the decline was seen on FTX, where open interest plummeted by 15.5% over the span of 4 hours. The rest of the declining open interest was seen in our usual suspects, Binance (-10.6%) and Bybit (-9.1%).
Sources: Skew, Tradingview (Coinbase)
While Bybit’s relative decline in open interest was smaller than what we saw on Binance and FTX, Bybit’s funding rates saw the highest impact. This indicates that Bybit traders experienced a more severe capitulation event than seen on FTX and Binance.
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