A surge of $1 billion in Bitcoin’s open interest on derivatives exchanges on September 18th sparked speculation among investors about whether whales were accumulating BTC in anticipation of the unsealing of Binance’s court filings. This surge led to Bitcoin’s open interest reaching $12.1 billion, alongside a 3.4% increase in its price, reaching its highest point in over two weeks at $27,430.
However, a closer look at derivatives metrics revealed a more nuanced picture. Despite the increase in open interest and price, the funding rate did not show clear signs of excessive buying demand. This raised questions about the true motives behind the surge.
The unsealed documents were 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. However, when the documents were revealed, investors quickly realized that there was little concrete information disclosed.
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 did request that Binance.US provide more details about its custody solution, casting doubt on whether Binance International truly controls the assets.
By the end of September 18th, Bitcoin’s open interest had receded 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 interested in maintaining their positions. In fact, 80% of the open interest increase disappeared in less than 24 hours.
It’s important to note that attributing the surge solely to Binance’s court rulings seems unwarranted. Several factors suggest that this may not be the case. Firstly, the unsealed documents were requested by the SEC, making it unlikely that they would favor Binance or its CEO. Additionally, the Bitcoin futures contract funding rate, which measures imbalances between long and short positions, remained stable throughout this period.
If the surge in open interest had been driven by desperate buyers, it would be expected to see the funding rate spike above 0.01%. However, on September 19th, the open interest expanded to $11.7 billion while the funding rate plummeted to zero. This indicates that there was no unforeseen demand surge and that the market dynamics were different from what was initially assumed.
One possible explanation for the surge in open interest is the involvement of market makers executing buy orders on behalf of large clients. This initial enthusiasm propels the price higher in both the spot market and BTC futures. Once the market maker becomes fully hedged, further buying is unnecessary, leading to a price correction.
During the second phase of the trade, where the market maker offloads the BTC futures contracts and purchases spot Bitcoin, there is no impact on the price. This reduction in open interest may disappoint participants who anticipated additional buying activity. Therefore, it is essential to carefully analyze the BTC futures funding rate and consider the operations of arbitrage desks before jumping to conclusions about manipulation.
In conclusion, the surge in Bitcoin’s open interest on derivatives exchanges on September 18th raised suspicions of whale accumulation ahead of the unsealing of Binance’s court filings. However, a closer examination of derivatives metrics and market dynamics suggests a more complex scenario. While the exact motives behind the surge remain unclear, it is important to consider various factors before attributing it solely to Binance’s court rulings.