Bitcoin’s Future(s) Is In The Metrics

Bitcoin Futures

In our 18 February post, which explored Bitcoin indicators, we highlighted open interest in the derivatives market. More specifically, the total outstanding notional open interest on futures and options contracts.

The Futures market increasingly influences Bitcoin.

More than 75% of all Bitcoin trading volume comes from the futures market.

In short, leverage and speculation, rather than buying and selling spot Bitcoin, are the key drivers of BTC and sentiment.

While on-chain data and spot Bitcoin flows provide valuable insight into long-term conviction and accumulation, understanding what’s happening in the derivatives market is equally important.

Funding Rates

A key metric is funding rates (the chart can be viewed at bitcoinmagazinepro).

Funding rates are periodic payments exchanged between long and short traders based on the difference between perpetual futures prices and spot prices.

Positive funding rates (green on the chart) indicate that longs are dominant, negative funding rates (red on the chart) indicate that shorts are dominant.

Whenever the funding is negative, it more often signals a local bottom and a buying opportunity. Significant spikes in positive funding more often signal a local price top.

Current funding rates are marginally positive, which suggests that the market is not overleveraged.

Given that BTC is near all-time highs, the current funding rates suggest potential for further upside.

Open Interest

Open interest is increasing rapidly and currently sits just short of all-time highs.

When open interest increases rapidly near significant BTC support and resistance levels (for example, the current BTC all-time high), it can signal that a break to the upside driven by short squeezes is imminent or a correction to the downside driven by liquidations.

Long Liquidation Dominance

During periods of significant price movement to the upside, there’s often a surge in short liquidations as bearish positions are closed out. A period of consolidation then follows, after which the price continues to rise.

Spikes in long liquidations often mark significant negative sentiment and, as a contrarian indicator, signal buy the dip opportunities.

Currently, more shorts than longs are being liquidated, which fits with more recent price movements.  

Considering how open interest aligns with price structure, funding rates, and liquidation zones, the probability balance is weighted in favour of further BTC price momentum to the upside.

On balance, the current metrics suggest that the market is in a healthy state.