0/ We recently sent our clients a special edition of the Monthly #Bitcoin Outlook by @YanLiberman and @Kevin_Kelly_II, and we’re excited to share it publicly today. This thread summarizes our take of the interplay between Price and Open Interest on Bitmex.
delphidigital.io/btc
delphidigital.io/btc
1/ We start off by recapping the 2019 volume profile for $BTC. This year, Bitcoin's volume profile has resembled that of a mini bull bear cycle. A more detailed recap can be found within the report. 
2/ Open Interest (OI) represents the number of perpetual futures contracts in existence, serving as a useful proxy for the amount of leverage in the market. In 2019, peaking OI has functioned as a potential sign of trend exhaustion and subsequent reversal.
3/ The first example of this dynamic took place during the rally in the beginning of April. OI was at its highest level since the price fell below $6k in Nov'18. During that <2hr window in early April when price rallied from $4.2k to $5k+, there was ~$500M worth of liq. on Bitmex
4/ Throughout the summer we saw this trend shift in the opposite direction with bullish exhaustion. It resulted in the use of Open Interest going above $1 billion as a sell indicator. We explain some of our thoughts on the drivers below.
5/ Another factor that helped keep open interest elevated was the decline in volatility. Muted volatility allows leverage to build because it creates an extended window for new or larger positions to be entered w/out forcing sizable stop losses or liquidations from existing ones.
6/ These were some of the elements that gave birth to the 1 billion OI trend. As you can see below, a selloff ensued each time OI broke above 1 billion. This process repeated throughout the summer and traders certainly began to catch on, leading to less time spent above $1B.
7/ Through all of this, volume continued to decline, esp. in spot markets. In the week leading up to the selloff from $10k, volume was half of what it was in the beg. of June, despite BTC's price being higher. Bitmex volume also went from being 1.5x the size of spot to 2.3x.
8/ Within the report, we also provide some metrics to quantify the significance of this trend and how it developed over time. The tables below show the average returns based on entries when OI was above 1 billion, along with how often price declined after those entries.
9/ To provide some context, we also looked into returns and frequency of price decline during all hours not spent above 1B during this 4 month window. The frequency of declines shows how it’s basically a coin flip when looking at your average time period.
10/ While this thread summarized our open interest analysis, our report addresses: who's been selling and driving price action, UTXO based long term holder patterns, Adj. NVTS, exchange flows (monthly, daily, and hourly level), sentiment analysis, macro catalysts/trends and more.
11/ We want to take a moment to thank all the wonderful data providers...without which this report would have not been possible. @thetokenanalyst @KaikoData @coinmetrics @BitMEXdotcom @bravenewcoin @TheTIEIO @mikealfred
12/ Our clients receive these reports every month. If you haven’t already - join the top funds, investors, & firms by subscribing via the link below.
As always, thank you for your time - and if you have any questions: please don’t hesitate to reach out!
delphidigital.io/research
As always, thank you for your time - and if you have any questions: please don’t hesitate to reach out!
delphidigital.io/research
