Bitcoin (BTC) rebuilds leverage with record open interest

Bitcoin (BTC) regenerated its leverage, with open interest for all fixed and perpetual futures at an all-time high. Open interest is a metric of market sentiment, usually taking at least a month to rebuild after a de-leveraging event. 

Bitcoin (BTC) open interest reached another all-time high, as the price seeks a new direction. BTC open interest moved above $32B based on Glassnode data, while other futures trackers show $21.59B across top exchanges. Additional Coinglass metrics tallies all open interest with CME and smaller markets at more than $39B.

https://x.com/glassnode/status/1849803700245586159

During the latest liquidity expansion, BTC also recovered to $68,448.95, still dominating Ethereum (ETH) and the altcoin market. The $69,000 level has established resistance in the past day. Any attempts at rallying often end in more selling, leading BTC to dip to the $67,000 range within minutes of attempting a breakout. BTC trading volumes are within their usual range at $30B in 24 hours, while USDT volumes were above $57B per day.

BTC is also entering the final stretch of election-year trading, an event that could also re-establish the sentiment of crypto traders. The latest price moves recall the fall of 2016 and 2020, with a similar buildup to the election results.

BTC leveraged positions recovered in the past months, with non-stop expansion since the August 5 de-leveraging event. The BTC open interest and liquidity took more than two months to recover. In the meantime, BTC once again moved in a range, rising above $69,000 in October. However, the market did not see any more dramatic de-leveraged events. 

At this liquidity level, BTC positions are predominantly long at 56% on most major exchanges. Binance alone carries $58B in leveraged positions. 

The liquidation heatmap shows increased liquidity at $68,500, which could be attacked if BTC rallies. Additionally, BTC has leveraged positions on the downside, with a cluster at $64,950. The heatmap itself will not predict the behavior of traders, but only the probable direction of prices in the short-term, if there is an attempt to attack the leveraged positions. 

The leverage itself cannot predict what direction the price will take. Overall, traders have become more careful and sophisticated, not causing big deleveraging events. BTC volatility also decreased to 1.56%, as BTC moved in a tighter range in the past week. 

During the last few de-leveraging events, whales increased their positions, while retail traders only activated in the past few days. Whale wallets increased by 297 in the past few weeks, while wallets with under $100 in BTC shrunk by 20,269. The last few months saw a record of whale wallets, with a growing number of long-term holders. The short-term fluctuations and deleveraging events are still used to shake down sellers and acquire their coins at a lower price range.

BTC awaits monthly options expiration

This Friday, BTC also awaits the monthly options expiration. A total of $4.2B in October options is set to expire, expecting short-term volatility before BTC chooses direction again. The current monthly expiry is close to September’s quarterly event, as BTC prepares for another volatile weekend.

According to Deribit, trading on Friday may move to several hot positions. The current options heatmap holds a cluster of call options at $70,000 with a notional value of more than $916M. 

Maximum pain is at $64,000, though there is a clustering of options at $69,000 to $70,000. Together with Ethereum (ETH), more than $5B in options are set to expire ahead of the weekend, sparking additional attempts to drive BTC and ETH to some of the futures expiration tiers. In the short term, this may boost volatility, as in last week’s smaller batch of futures expiration. 

While BTC showed it could recover close to $70K within a week, traders are cautious and do not rule out a drawdown. More bearish traders are also predicting a ‘nuke’ event, which usually happens right after building up leverage. The drawdown narrative clashes with the expectations for a bull market in the final quarter of 2024. One of the scenarios includes a deep drawdown to the $40,000 level before an attempted recovery.