Bitcoin Derivatives Market Flashing Signs of Caution

Open interest has fallen alongside a declining bitcoin price and a negative funding rate, suggesting traders remain reluctant to throw caution to a heated rally

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Source: Shutterstock / William Potter, modified by Blockworks

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As bitcoin continues to jostle for a position above $30,000, traders in the derivatives market have begun to take some profit off the table.

A look at bitcoin’s (BTC) price action to the downside alongside falling funding rates suggests less demand for long positions remains in the market as traders eye short-term selling.

Prices for the world’s oldest crypto shed more than 5% on Wednesday, falling from around $30,400 to $28,600 before recovering slightly to $29,000. 

Single-day spot trade volume shot up to its highest in almost a month, suggesting conviction in the move for BTC traders. 

Aggregate futures volume, meanwhile, has remained steady growing day by day across multiple exchanges, data from Coinglass shows.

Across Bybit, Binance, Gate.io and others, funding rates for bitcoin perpetual contracts flipped slightly negative for the first time since April 10, data from CryptoQuant shows, and are roughly flat as of 5:30 am ET, Thursday.

When funding rates are negative, it means traders holding short positions — betting the price will go down — are paying fees to traders holding long positions. Rates typically reflect demand for a given contract and therefore the underlying asset.

Coupled with the negative flip, open interest has also fallen since April 13 — indicating caution and a washout of over-leveraged long positions. The total value of OI on outstanding contracts has fallen from $9.5 billion to $8.3 billion over that period, marking the steepest 7-day decline since late March, CryptoQuant data shows.

“The negative funding rate reactions and coinciding decline in open interest suggest that perp traders with long exposure maintain a conservative approach,” research firm K33 said in a recent report.

“Reducing exposure amidst strength, leading perps to trade below spot” has done little to impact the structure of perpetual contacts, which remain in a “constructive and healthy state,” the firm said.


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