Bitcoin’s [BTC] latest recovery appears increasingly dependent on leveraged Futures buying rather than Spot demand alone. Futures Open Interest (OI) grew 8.04% to $27.12 billion within 24 hours. Despite that, BTC retraced to below $82,000 at press time.
This rise suggests traders are opening new positions to capture further gains, adding momentum to the recovery. However, as seen in prior rallies in August and September, these large increases in OI were followed by sharp declines in price and multiple sell alerts.
Increases in leverage therefore can provide significant impetus to an increase in price. However, they can also make a trader very susceptible to being forced into liquidation at a loss. Since Futures OI is trending back up after a fall-off in October.
Sustained buying could support further gains. Still, if investor sentiment begins to deteriorate, then there could be a cascade of forced liquidations and a larger drop in price.
Altcoins overtake Bitcoin in OI
The dominance of Bitcoin derivatives has weakened significantly as traders continue to use leverage to bet on altcoins. Historically, Bitcoin has held over 90% of all OI. In contrast, currently it accounts for less than half, 42.6%, against altcoins’ 57.4%.
This reversal accelerated from 2022, when the percentage of Bitcoin’s leveraged contracts plummeted and the use of altcoin contracts became much more widespread among large exchange users.
As such, this indicates that there is an opportunity for investment in altcoins beyond Bitcoin. However, this may also mean that the potential for greater losses due to a rapid decline in price for the same altcoins may be dispersed throughout a wider range of assets.
Bitcoin leverage faces liquidation risks
Growing leverage in both Bitcoin and altcoins raises an important issue. Will the leverage currently available in the marketplace be enough to sustain itself?
Although altcoins now represent approximately 57.4% of all OI, it is still too early to determine whether Bitcoin’s current positioning represents an indication. The market will be able to sustain the high level of leverage it is experiencing.
Aggregated Futures OI levels range from $30 billion to $53 billion. Funding Rates have remained steady around +0.004%. As such, there does not appear to be widespread long-side crowding.
Therefore, spot demand will be needed to provide additional support for BTC’s continued growth and will not rely solely on leverage.
Final Summary
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Bitcoin open interest surged 8.04% to $27.12B, increasing leverage-driven rally risks.
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BTC faces liquidation risks as altcoins dominate 57.4% of open interest and spot demand weakens.
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