Bitcoin Futures Open Interest Surges by $1 Billion: Unveiling Potential Manipulation or Strategic Hedging?

Bitcoin’s open interest on derivatives exchanges saw a sudden increase of $1 billion on September 18, leading to speculation about whether whales were accumulating in anticipation of the unsealing of Binance’s court filings. However, a closer look at derivatives metrics suggests a more nuanced picture, as the funding rate did not show clear signs of excessive buying demand.

The decision to unseal the documents was granted to the United States Securities and Exchange Commission (SEC), which had accused Binance of non-cooperation despite previously agreeing to a consent order related to unregistered securities operations and other allegations.

The open interest spiked to $12.1 billion, while Bitcoin’s price concurrently increased by 3.4%, reaching its highest point in over two weeks at $27,430. However, investors soon realized that there was little concrete information revealed in the unsealed documents, aside from a comment by the Binance.US auditor regarding the challenges of ensuring full collateralization.

Later in the day, Federal Judge Zia Faruqui rejected the SEC’s request to inspect Binance.US’ technical infrastructure and share additional information. However, the judge stipulated that Binance.US must provide more details about its custody solution, casting doubt on whether Binance International ultimately controls these assets.

By the end of September 18, Bitcoin’s open interest had decreased to $11.3 billion as its price dropped by 2.4% to $26,770. This decline indicated that the entities behind the open interest surge were no longer maintaining their positions.

It can be assumed that most of the demand for leverage was driven by bullish sentiment, as Bitcoin’s price climbed alongside the increase in open interest and subsequently plummeted as 80% of the contracts were closed. However, attributing cause and effect solely to Binance’s court rulings seems unwarranted.

If there had indeed been an unforeseen demand surge of $1 billion in open interest, primarily driven by desperate buyers, it’s reasonable to assume that the funding rate would have spiked above 0.01%. However, quite the opposite unfolded on September 19, as Bitcoin’s open interest expanded to $11.7 billion, while the funding rate plunged to zero.

With Bitcoin’s price rallying above $27,200 during this second phase of open interest growth, it becomes increasingly evident that, regardless of the underlying motives, the price pressure tends to be upward. While the exact rationale may remain elusive, certain trading patterns could shed light on this movement.

One plausible explanation could be the involvement of market makers in executing buy orders on behalf of substantial clients. This would account for the initial enthusiasm in both the spot market and BTC futures, propelling the price higher. After the initial surge, the market maker becomes fully hedged, eliminating the need for further buying and leading to a price correction.

During the second phase of the trade, there is no impact on Bitcoin’s price, as the market maker must offload the BTC futures contracts and purchase spot Bitcoin. This results in a reduction in open interest and may disappoint some participants who were anticipating additional buying fervor.

Rather than hastily labeling every “Bart” formation as manipulation, it is advisable to delve into the operations of arbitrage desks and carefully analyze the BTC futures funding rate before jumping to conclusions. Thus, when there is no excessive demand for leveraged long positions, an increase in open interest does not necessarily signify a buying spree, as was the case on September 18.


This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

❗Follow us on Twitter to get all the latest crypto news as soon as they're out! 🚀

J-S Tremblay
About the author - J-S Tremblay

I've been involved in the cryptocurrency world since 2016 and trading since 2019. I started Moon and Lambo in 2021. I'm passionate about crypto and love to share my knowledge. I hate bankers and I hope that cryptocurrency will change the financial world for the better. View full profile...

View J-S Tremblay website

Leave a Comment

Your email address will not be published. Required fields are marked *

Scroll to Top