According to CoinDesk: Bitcoin futures trading has taken a notable turn. Periodic spikes in open interest or active contracts often signal a tipping point for Bitcoin prices. A 35% increase in open interest in the standard Bitcoin futures contract from the Chicago Mercantile Exchange (CME) over a span of four weeks has been recorded.
Historical data indicates that open interest spikes often precede trend reversals in the spot market. As evident from the global derivatives giant, CME, Bitcoin (BTC) futures play an instrumental role in uncovering price trends in the spot market. Fresh research from McClellan Financial Publication provides novel insights into shifts in Bitcoin’s price related to sudden jumps in open interest.
Open interest in CME's standard, also known as large BTC futures, has grown by 35% to reach 19,603 contracts worth $3.4 billion, as reported by CFTC's Commitment of Traders. The standard contract, sized at 5 BTC (approximately $173,000), serves as a key index of institutional activity.
The indication that Bitcoin’s ongoing uptrend could lose momentum soon is evident from the substantial rise in open interest over a short period, potentially paving the way for a price decease. The cryptocurrency has made notable gains of over 25% in four weeks, hovering close to $35,000.
Tom McClellan, editor at The McClellan Market Report, highlighted that the fascinating aspect of total open interest in Bitcoin is its sporadic spikes within a relatively compressed time frame. Such occurrences almost invariably suggest a turning point for Bitcoin prices.
Notably, both Bitcoin's recent price appreciation and the surge in open interest likely hint at expectations of imminent approval by the U.S. Securities and Exchange Commission (SEC) for one or more spot-based BTC exchange-traded funds (ETFs).
Although most market watchers believe that a US-based spot ETF could inject billions of dollars in fresh investor funds, thereby driving up BTC's market value, it is cautioned that this inflow may not materialize instantly. The pattern observed following the launch of ProShares' bitcoin futures ETF (BITO) in October 2021, a pattern mirrored in the gold market of the 1970s, serves as a sobering lesson.
In McClellan's words, "Speculators are rushing in ahead of that anticipated surge in demand, just as they rushed in ahead of BITO approval only to see it top". The chasing sentiment, just ahead of the potential ETF approval, may leave speculators in a similar situation to the gold speculators of 1974 and the recent Bitcoin speculators who drove prices up ahead of the BITO futures-based ETF debut.
