07 Dec 2021

Second largest flush in BTC denominated open interest in 2021

Open interest in the futures market plummets to 325,000 BTC amid weekend carnage in the market.
Source: Skew
Last week, we mentioned how the bitcoin denominated open interest (OI) sat at bloated levels in a historical context, a worrying signal from the futures market. During bitcoin’s crash on December 4th from $54,000 to $40,000 (on certain exchanges), we got a massive liquidation cascade leading the bitcoin denominated OI to fall from 390,000 BTC to 330,000 BTC.The bitcoin denominated OI fell by 58,000 BTC on Saturday; the second-largest daily decline in BTC denominated OI this year. Only May 19th saw a larger decline.The violent sell-off thus contributed to deleveraging the market, leading the futures market into a far healthier state.The leverage undoubtedly exaggerates the volatility during price moves. This is why we so frequently monitor the open interest closely in our weekly market updates.The Dec 4th crash shows why it’s essential to be aware of leverage in the market and why it is wise to derisk when leverage gets lofty. The BTC denominated OI now sits at 325,000 BTC. The BTC denominated OI has been lower than this for 87 days in 2021, mostly throughout the sluggish market this summer.
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