Topic: Futures open interest might hint at market top... - page 2. (Read 383 times)

As can be attested to by the numerous Bitmex rekt threads you'll find popping up --  bull run or not. I probably agree that a tiny liquidation price at "moderate" leverage looks attractive for the next few months. Strange that 50k actually is causing a flurry of new fomo when the new ATH didn't really but here we go.


I know that's just a sweeping statement (I definitely did invoice the hell out of people in March haha) but you're right. There's a supply squeeze already on the horizon.

Owning a cfd is not proof of ownership of the underlying asset. Coinbase and binance fiat exchanges are dojng fiat to fiat trades. You'll be deleveraged if they don't have the funds to cover you (while using leverage).

Here is the thing,

At $3K nobody was buying... everybody was selling
At $50K nobody is selling... everybody is buying

A small $500 amount can buy up to $50000 worth of BTC. Someone basically only puts in $500 into the market and the counterparty needs to buy $50000 worth of crypto to hedge. So $500 can remove up to $50000 worth of supply from the market. This is similar to how a cheap $1 call contract in the stock market represents 100 worth of shares.

Now here is the situation. If there is little bid side liquidity how will the $50000 get closed? The most the $500 investor can lose is $500, where will the other $49500 come from?

For anyone wondering why people say they couldn't predict the top last time, it's because there was a price correction just before it in 2017... I think the price did something like $17k to $12k to $20k in a month or two as I remember $18k being reported as a new top.

We still had leverage back then, it was smaller but so was the market cap... There are a lot of people doing a few times leveraged lings. Most are pointing at us going to 62k and then to 29-39k or vice versa (eg we could liquidate everything over 3x before we get there and might even go further).

A 5x long with a tiny liquidation price doesn't look too bad now.. At $3k the chance of us dropping by half was a lot higher than it is now we're at $50k and have a lot more people looking at the market.

crypto is one of the highest risk markets out there for leverage trading

Not sure if it's easier to predict the bottom, to be honest. And depending on the timeframe too. 30k still possible or 90k next? And we're talking about 3, 6 or 9 months til end of the year?

Open interest does say something though about sentiment and if we're ten times what we were just 2/3 years ago, it's impossible to ignore.

Another Bitmex flash crash of epic proportions you say? Show me the line to buy then.

This is not investment advice. I am not a financial advisor. I am just posting this for entertainment purposes.
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Where will Bitcoin top? We just broke $50K? So is $100K next. What about $250K. Honestly its impossible to predict the top. Easier honestly to predict when a bottom will happen rather than a top.

So what can you do to sell as close to the top as possible? I think we can analyze the bitcoin futures open interest.

Currently this is the open interest for BTC futures.
https://www.bybt.com/BitcoinOpenInterest

As you can see, in the last 12 months we went from $3.5B to $18.75B. This is crazy since back in 2018 the largest open interest was maybe $1.5B or so.

Why is the open interest so high? Well I think part of it is people going full leverage to make the most money possible. Another part can be people capturing the premium.

Currently its expensive to borrow fiat to go long on bitcoin. Most exchanges have run out of available USD funds to buy crypto and others have crazy funding rates. So hence why there is always a positive funding on BTC and ETH, usually 0.25% per day lately. Hence if you look at the June futures for BTC, they are currently at 11%.

So I think alot of the money that is entering crypto now, is mostly cash and carry trades. Someone prints $100,000,000 USDT and they invest that to capture the 11% premium within 4 months. Which is about 33% APR. Where else can you get that kind of interest.

Here is how its done.

Someone sends $100,000,000 (or any amount) to a crypto exchange.
They buy $100,000,000 worth of ETH or BTC on spot and at the same time they sell $110,000,000 contracts on the June futures exchange.
Wait 4 months. Sell the spot holding and get back $100,000,000 while they buy the 111,000,000 contracts position and they will net $11,000,000 in profit.


The reason this works is because currently the markets are balanced, there is lots of liquidity on both markets. The trouble might come when the premium dries up.

Say next month or in 2 months the 11% premium goes down to 1%. Most likely the arbitrator will want to close the position and get their 10% early rather than wait longer to get another 1%.

So what happens is they need to unload $100,000,000 worth on spot and buy $110,000,000 on futures.  The issue here is, eventually the bid side on the spot market might not be able to handle all this selling pressure. The futures exchange has 100x leverage so it can usually handle this type of volume. But if there are billions of these positions that are getting unwinded who will be able to close them?

Also consider this.

Say you short 1 BTC at $50,000 by "cash and carry" method. And price is $25,000 when you want to close. You will gain another 1 BTC in profit. So to close the trade you will need to sell 2 BTC to get back your $50,000. And as the price of BTC goes lower and lower that means more and more BTC supply needs to hit the bid side to close the trade.

Eventually what might happen is similar to what happened with Bitmex back in March 2020. The market was leverage long and there was billion of long liquidations and nobody to cover them. Hence why we got that flash crash.

There is alot of money entering crypto. However at these prices how do we know that this money is to actually spot long BTC and not do these "cash and carry" trades? We see these huge tether prints. How do we know its someone who is buying for long term cold storage spot hold? Or someone just milking the premium?

Leverage is very powerful. Especially 100x. Someone with basically $500 cash can long about 1 BTC worth using 100x leverage. Hence someone on the other side of that trade can arbitrage that 1 BTC worth, by actually buying $50000 without leverage on spot. Hence there is a similar type of squeeze going on here to a gamma squeeze. The issue will be when these bids disappear. Because that $50000 futures position will eventually need to be closed by someone selling $50000 worth of spot and if the money isn't there then there will be a long squeeze.

TL:DR Wait until the open interest starts to decline and no premium on the future contracts. Then most likely some large crash might be coming.