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Is Rising Bitcoin Futures Open Interest Cause For Concern?

The aggregate bitcoin futures open interest rise is slightly below all-time levels.

The below is from a recent edition of the Deep Dive, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.

Aggregate bitcoin futures open interest rise is slightly below all-time levels made at the local bitcoin market top in April. Is this cause for concern? 

While futures open-interest and leveraged bets favoring the long side have certainly increased over the recent weeks with bitcoin’s feverish rally past previous all-time highs, there are a few key distinctions between the market structure in April versus what we are seeing now. 

Source: Glassnode

The biggest and maybe the most important difference between the derivatives market in April compared to today is the percentage of futures-open interest that is using BTC as collateral to enter a position. With bitcoin derivative markets, you can either use BTC or stablecoins as collateral.

If you are long (directionally betting on prices to increase) using bitcoin, then if the price decreases your position P&L (profit and loss) and your collateral decrease in value in tandem, this raises the liquidation price of your position. This can result in mass-market liquidation events, similar to what happened in May following the April highs.

Thus, it holds great significance that the percentage of open interest using BTC as collateral has declined significantly since April, from a high of 70.17% to 45.04%. This is a trend we have been covering in detail since July, when we broke down some of these dynamics in The Daily Dive #028 – Structural Changes To BTC Derivatives Market.

Calls For Tesla To Resume Bitcoin Payments As Mining Reaches 57% Renewable Energy

Bitcoin mining energy consumption has been one of the most addressed issues in the crypto space. Concerns over its energy consumption and environmental impact had been reasons cited during the China crackdown that saw miners exit out of the region en masse. The once bitcoin mining capital of the world had seen its hashrate crumble::Listen

Bitcoin mining energy consumption has been one of the most addressed issues in the crypto space. Concerns over its energy consumption and environmental impact had been reasons cited during the China crackdown that saw miners exit out of the region en masse. The once bitcoin mining capital of the world had seen its hashrate crumble to zero following this move.

Automotive manufacturer Tesla had also cited the same reasons when it had removed BTC payments option for its electric vehicles after implementing barely two months earlier. According to CEO Elon Musk, the EV manufacturer planned on implementing BTC payments again but the catch was that bitcoin mining would have to reach at least 50% clean energy.

Related Reading | Croatia’s Largest Supermarket Chain Rolls Out Bitcoin Payments

Bitcoin Mining Crosses 57% Renewable Energy

The Bitcoin Mining Council which had been formed in June has been dedicated to tracking and reporting mining activities in the space. One of those has been the renewable energy usage in mining. The council which is made up of a network of bitcoin miners first reported in Q2 of 2021 that bitcoin mining activities had surpassed 50% renewable energy.

In October, the council had once again released a report addressing the energy consumption of mining activities. The Bitcoin Mining Council reported that renewable energy usage had gone up in Q3, touching at 57.7% renewable energy.

These numbers have evidently surpassed the threshold that Tesla CEO Elon Musk had set back in June as a prerequisite for resuming BTC payments.

This is inaccurate. Tesla only sold ~10% of holdings to confirm BTC could be liquidated easily without moving market.

When there’s confirmation of reasonable (~50%) clean energy usage by miners with positive future trend, Tesla will resume allowing Bitcoin transactions.

— Elon Musk (@elonmusk) June 13, 2021

BTC crashes to $55K | Source: BTCUSD on TradingView.com
Calls For Tesla To Resume BTC Payments

Taking to Twitter, BTC supporters had called on Elon Musk to review his statement regarding BTC transactions for Tesla vehicles. Data from the Bitcoin Mining Council’s report had been quoted by others to show that mining activities are now being powered by more than 50% clean energy.

Confirmed. Your move @ElonMusk 🤔 pic.twitter.com/1c0TtKg1Ow

— Bitcoin Archive 🗄🚀🌔 (@BTC_Archive) December 1, 2021

Others, however, have questioned the credibility of the numbers provided by the council. Pointing out information from the press release that said 33% of the global bitcoin network had taken part in the survey. Another user said that there was no way to get reliable data using paper surveys. Rather energy audits would need to be carried out to determine what percentage of energy is clean energy.

Related Reading | SEC Boss Acknowledges That Bitcoin Is A Competitor For U.S. Banking System

There is no doubt that Tesla resuming BTC transactions would be positive for the market. The first time the automotive manufacturer had implemented crypto payments had sent the price of BTC surging.

Elon Musk – or Tesla, is yet to address the issue of reinstating BTC payments despite the two reports from the Bitcoin Mining Council showing that mining has now crossed 50% clean energy.

Featured image from Ledger Insights, chart from TradingView.com

Is Rising Bitcoin Futures Open Interest Cause For Concern?

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