Open interest on Bitcoin futures has hit $10 billion, its highest ever, according to data from Skew Analytics. That means that there’s $10 billion worth of bets on the future price of Bitcoin. Coinciding with the record is a bumper weekend for Bitcoin’s price, which shot past $30,000 yesterday to reach its all-time high price of $34,608.
Futures contracts are a type of Bitcoin derivative that involves traders agreeing to buy some Bitcoin in the future at a price agreed upon beforehand.
This means that if Bitcoin rises by the time the contract expires, the person who bought the contract will profit since they can sell that Bitcoin on the open market. Of course, if Bitcoin’s price falls, then that trader will have lost money.
Open interest refers to the numbers of these Bitcoin futures contrast that are yet to be settled. Futures contracts, obviously, are settled in the future. Some contracts expire after a certain amount of time (a day, a month, a quarter, a year, and so on), which partly explains why the open interest for futures contracts dipped from $9.4 billion on December 31 to $8 billion on January 1.
Other futures contracts are so-called perpetual contracts, meaning that traders can cash out whenever they like. And futures contracts differ from options contracts, which offer traders the obligation, but not the right, to buy Bitcoin upon their expiry.
But the futures volume picked right back up on January 2. That’s likely for two reasons. The first is that futures traders, whose contracts had just expired, saw Bitcoin’s booming price and chose to reinvest. The second is that a whole load of new traders witnessed Bitcoin’s price zip past $30,000 yesterday and wanted to get in on the action.
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The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.