Bitcoin futures market sees big drop in open interest: What’s next?

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The Bitcoin (BTC) derivatives market has experienced a heavy leverage flush over the past two weeks through April 13.

The Bitcoin Futures Open Interest 7-day change – a metric that shows the weekly shift in aggregate BTC futures open interest – had dropped to approximately -3% at the time of reporting, according to data from CryptoQuant. Essentially, Bitcoin traders have been closing positions or getting liquidated faster than new positions are being opened.

Bitcoin Futures Open Interest 7-day change. Source: CryptoQuant

Worth noting that the crossover of this metric from positive to negative occurred on April 12, hence signaling an early deleveraging event.

What’s next for Bitcoin price amid rising deleveraging?

The midterm outlook for Bitcoin price faces a potential short squeeze – a bull rally fueled by short sellers capitulating – catalyzed by the negative funding rate for its futures market amid renewed spot demand. A negative funding rate means shorts are paying longs, indicating that the market is net short and structurally positioned for a squeeze if spot demand accelerates.

Notably, the Bitcoin 7-day Simple Moving Average (SMA) funding rate – which shows total futures open positions across Binance, Bybit, and OKX – transitioned from a positive zone of 0.33% to a negative zone of 0.17%, according to analytics from CryptoQuant.

BTC Futures Perpetual Funding Rate (7-day SMA). Source: CryptoQuant.

Meanwhile, the appetite for Bitcoin in the spot market has risen in the past week, led by institutional investors. For example, the U.S. spot BTC ETFs closed last week with a total net cash inflow of more than $816 million, led by BlackRock’s IBIT. Last week, Strategy Inc. (MSTR) acquired 13,927 Bitcoin for over $1 billion, thus increasing its holdings to 780,897 BTC. As such, BTC led last week’s $1.1 billion net cash inflows to digital asset investments with approximately $871 million, according to data from CoinShares.

“As long as the spot price holds above $70,000, the divergence between a resilient spot and a bearish derivatives structure keeps the short squeeze potential intact,” analyst Axel Adler from CryptoQuant noted.

However, if the institutional spot demand for Bitcoin weakens amid ongoing futures deleveraging, a potential capitulation below $70,000 could be inevitable.

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