Cryptocurrency Derivatives Series: Bitcoin Position Proxies Based on Open Interest in BitMEX Perpetual Swap and CME Bitcoin Futures Contracts

Contemplating with the price being decreased, along with that the declining OI (refer monthly open interest data which is in the negative numbers in the above nutshell provided by CME group and refer 1st exhibit for sloping OI curve), the underlying market is perceived to be making some sort of strength for the long-run.

This is because when both the participants (holder and writer) are liquidating their old positions, the Open Interest is most likely to slide.

While the JPM’s position proxies for the CME and BitMEX futures contacts are shown in the 2nd figure. Where the CME position proxy suggests the long base has declined markedly since their peak during the summer, and some further reduction this week. 

By contrast, the BitMEX position proxy suggests a more marked capitulation of bitcoin longs over the past week. This position liquidation has also likely contributed to the sharp falls in bitcoin prices this week. But while the previous overhang of long bitcoin futures positions appears to have cleared in BitMEX futures, this is not yet true for CME contracts. 

Finally, another recent development is that the CME has announced that it will launch options on its bitcoin futures in the first quarter of 2020. While the listing is subject to regulatory review, the contract would be a welcome development in that it expands the alternatives for investors to manage risk. Courtesy: JPM & skew.