Bitcoin Open Interest and Price Movements Analyzing Market Sentiment
The number of open contracts in futures can be regarded as an indicator of market liquidity. However, since the beginning of 2024, the open positions of Bitcoin futures have been consistent with the price trend. Can we find clues through on-chain data?
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Bitcoin open positions highly correlate with the price this year
In the medium term, each has its own market trend
How to interpret the number of open contracts and market sentiment
On-chain data shows that the open positions of cash-settled Bitcoin futures contracts (OI) have fluctuated significantly in the past few months. From the chart, it can be observed that the trend of Bitcoin futures open positions is highly correlated with the spot price.
In early January 2024, the initial OI of Bitcoin futures contracts with cash margin on all exchanges was about 280,000 BTC, and it steadily rose to a peak of around 340,000 BTC in mid-March. After this peak, Bitcoin experienced a significant decline and bottomed out near 280,000 BTC in early May. This is related to the fluctuation in the spot price of Bitcoin, as it reflects the volatility of the futures market. After the halving in April, the open contracts increased again, maintaining a level above 300,000 BTC, indicating renewed interest from market participants and preparation for the upcoming market trend.
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When we zoom out and observe the medium-term data, it can be seen that from January 2021 to 2023, the open positions of Bitcoin futures contracts with cash margin showed a more significant upward trend, reaching a peak of 380,000 BTC at the end of 2022.
This time period covers the previous bull market and the subsequent bear market, but the overall trend of open positions is still upward. Especially from the end of 2023 to early 2024, the number of open contracts increased significantly, surpassing 350,000 BTC. This indicates that in the medium-term data, the open contract volume has taken a different path from the Bitcoin price. The halving event is usually considered to have a significant impact on the Bitcoin price, so market participants increased their positions, reflecting expectations of potential price increases.
The change in the number of open contracts can also be seen as an indicator of market sentiment. During price fluctuations, an increase in open contracts often indicates more market participants trading, possibly indicating an increase in bullish sentiment. Conversely, a decrease in open contracts may imply a more cautious attitude among market participants or increased uncertainty about future price trends.
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Further reading
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