Written by

Vetle Lunde

Senior Analyst

14 Dec 2022

Open Interest versus PoR

Source: Coingecko, Binance, Bitget, OKX, Bybit, Kucoin, Gate, BitMEX, Crypto.com, Phemex, Huobi

Various exchanges have gradually presented Proof of Reserves (PoR) in the last month, with certain exchanges being critiqued for running Agreed-Upon Procedures. Nevertheless, it is still great to see a push toward more transparency by offshore exchanges.

Various exchanges have gradually presented Proof of Reserves (PoR) in the last month, with certain exchanges being critiqued for running Agreed-Upon Procedures. Nevertheless, it is still great to see a push toward more transparency by offshore exchanges.

In the past year, the BTC futures market has experienced major changes, with some exchanges experiencing huge growth in open interest. However, we have doubts about the validity of the data supplied by certain entities, as some may be inflating their numbers to appear more significant. To better understand open interest relative to assets held on an exchange, we gauge open interest relative to disclosed proof of reserves. Although a high OI to PoR ratio does not necessarily mean malicious activity is taking place, it is still something to be aware of. The exchange with the highest OI to reserves ratio is Bitget at 680%, followed by Phemex at 361% and Bybit at 153%. If you seek to trade derivatives, a cautious approach may be to avoid the exchanges with the highest OI relative to reserves. While BitMEX and Deribit’s OI to reserves ratio may seem high, it’s important to understand that Deribit solely offers derivatives, and traders at Deribit are likely more inclined to be active with the deployed capital. In our opinion, Binance, OKX, BitMEX, and Deribit are reasonable venues to use for active trading, with BitMEX and Deribit currently being underappreciated for their straightforward isolated margin structure, simplicity, and long-lasting transparency.

Binance deleveraging

The open interest in Binance’s BTCUSDT perp has seen a substantial fall in the last week and fell by 32,000 BTC from December 5 to December 7, with no meaningful impact on BTC prices, which hovered at around $17k in the period, albeit on a slight downtrend. This combination of large changes to Binance's OI and a lack of price volatility is similar to what was seen last December, leading certain traders to question the accuracy of Binance's OI data. The dampened price impact could also potentially be caused by an OTC transaction between two entities on opposite sides of the market.

Source: Tradingview (Binance)