March 30th could be a historic day that Bitcoin (BTC) fans will remember for a long time. PayPal not only saw a 17% rebound from the $ 50,300 low on March 25, but it also officially confirmed that it will support crypto payments for US customers. In addition, the CME Group announced that its Micro Bitcoin futures contracts will be launched on May 3 with a contract size of 0.1 BTC each.
More positive news came when Morning Brew, a daily business newsletter with 2.5 million subscribers, finally lost gold and now has Bitcoin in its price alongside the S&P 500, Nasdaq, Dow, 10-Year Treasury and JPMorgan stocks Market area is exhibiting.
March 30th also marks 3 weeks of BTC price with a daily candle that is above $ 50,000. As the market is pointing to a healthy period of consolidation, traders should therefore closely monitor investor leverage. Historically, crashes often occur when buyers are overly optimistic and any sharp price movement greater than 8% tends to trigger larger cascading liquidations.
BTC price at Binance, USD. Source: TradingView
The open interest in Bitcoin futures shows the size of the current long and short positions. When that number increases significantly, investors are at greater risk. This shows increasing market interest in the asset, but it also comes at the expense of potentially sizeable liquidations.
BTC futures aggregate open interest in USD. Source: Bybt
The graph above shows a 105% increase in open positions in futures over the past two months. The current indicator of $ 22.6 billion remains just 2% below its all-time high.
While Bitcoin’s price surge may explain some of that increase, it also reflects renewed confidence as long positions of $ 7.4 billion were liquidated between March 14 and March 24.
To understand how bullish or bearish professional traders are, one should analyze the futures base rate. Basis is also often referred to as the futures premium and measures the difference between longer-term futures contracts and the current spot market level.
An annualized premium of 10% to 20% (base) is called neutral or contango. This difference in price is caused by sellers charging more money in order to withhold settlement longer.
OKEx BTC 3-month futures basis. Source: Skew
On March 13, BTC markets entered an excessive leverage situation as the base rate approached 35%. Being optimistic, especially in a bullish market, shouldn’t be viewed as worrying. However, when the price fell 11% from an all-time high of $ 61,800, these buyers’ positions were closed with extreme leverage.
This time around, the base rate is 29%, which is reasonably high, but the number could adjust itself over the next few days. These leveraged buyers could increase their margins or buy BTC on regular spot exchanges and then reduce their futures position.
While longs appear to be overly indebted, there is currently no evidence of potential market stress to suggest a negative outcome if BTC price falls to $ 53,000. With most of the recent surge in open positions in early March, the average price of the long shouldn’t be much higher.
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