Bitcoin Open Interest

BTC News #38

Bitcoin has made it into the top 10 currencies around the world.

Think about how insane that is. A decentralized, permission-less, non-sovereign, borderless, digital currency was created in 2008 and is now in the top 10 of currencies. Bravo to everyone that lead the charge at the beginning and did their homework along the way to realize how great of an invention this is.

Last week, I taught two classes on Bitcoin on-chain metrics, Bitcoin and macro, and DeFi inside Ethereum. During the class I discussed funding rates and how they impact big moves in Bitcoin. The students seemed to really get value out of that so I decided to write about open interest and funding rates for the next two newsletters.

The Bitcoin open interest is the total number of outstanding Bitcoin derivative contracts, such as options or futures that have not been settled. When it comes to futures, we can use crypto exchanges such as Binance or Bybit which are popular platforms for futures traders. However, those are more focused on retail traders. If we want to get an idea of institutional interest we can use the CME Futures which offer Bitcoin contracts. Institutions use CME because it’s a trusted broker where large sums of money can be put to work. In addition, they don’t have to take on the risk of storing their Bitcoin while trading CME Futures. Last, it’s highly regulated in the US, giving it the credibility needed to attract institutions.

Using Glassnode, we can see the total open interest in Bitcoin futures.

We can also see it per exchange.

These are important metrics to follow to see how much interest is building in the futures derivatives market for Bitcoin and see trader sentiment for the future price.

In addition to futures, we also track the Options open interest which adds up the value of the outstanding, un-exercised options. One of the most popular options brokers in crypto is Deribit. A common strategy with options is to hedge current spot positions, especially to protect gains if you have rode the uptrend of Bitcoin.

The Bitcoin options market is useful for miners that want to get an advance on Bitcoin they expect to mine, by selling call options. Since miners usually have a good idea of how many Bitcoin they will mine based on the hashrate and their equipment, call options give them the obligation to deliver Bitcoin on a specific date and price. Since they’re making that promise on the date they enter the call option, that is when they get paid. There could be many reasons why a miner would want to do this but mainly it comes down to operating at peak efficiency.

All in all, the options market creates more stability for miners and investors to hedge their positions. This could in turn decrease volatility and allow miners to more effectively run their businesses.

Here is a chart on Bitcoin Options Open Interest.

The Bitcoin market is getting more and more sophisticated as new markets open up. All of this creates a stronger foundation for the Bitcoin market to grow and thrive and put to bed all the FUD no-coiners like to voice.

Shoutout to Nic Carter and his great article that I used as a source to write this article.

In the news…

Bulls on Crypto Street - Free Intro Course & Chatroom

If you’re interested to learn more about crypto trading, macro analysis, and on-chain metrics, you can get a free intro course and access to a crypto chatroom run by my friends at Bulls on Wall Street.

Resources I Use

Glassnode - Track Bitcoin on-chain metrics

I use Glassnode for all the metrics I track on the Bitcoin network. Their platform is extremely user friendly and fun to use.

Binance - Get 10% off trading fees using my link

Binance is the main exchange to trade the crypto markets.

Coinsquare - Bitcoin Exchange For Canadians

Coinsquare offers Bitcoin trading in Canadian dollars and is one of the top exchanges in Canada.

Tradingview - Charting Software

I use Tradingview daily to analyze trading charts and find areas of support and resistance.

TokenTax - Crypto Taxes

I use TokenTax to calculate my crypto taxes at the end of the year. They plug in directly to the exchange you use through an API. After you get the full report you can send it to your accountant or have their accountants finalize everything.

Nothing in this article is investment advice. I’m not a financial advisor. Do not make investment decisions based on what is in this article or any other article written by BTC News or Blockedia.