Bitcoin open interest outperformed crypto markets amid BTC Spot ETF hype

• A Bitfinex report indicates that Bitcoin open interest outperformed the crypto market in August.
• The report attributes the surge to increasing institutional interest and wash trading on some exchanges.
• The industry had begun to experience capital outflows by early August, with up to $55 billion drained across the month.
• Capital outflow causing liquidity shortage and shrinking volatility leaves Bitcoin price susceptible to event-based influences.

Bitcoin (BTC) open interest outperformed the entire cryptocurrency market in August, amid hype relating to Bitcoin Spot Exchange-Traded Fund (ETF). The comparison follows a report by Bitfinex, noting that outflows reached $55 billion, with the liquidity crunch giving event-based volatility more influence on prices.

Bitcoin open interest skyrockets amid growing institutional interest

A Bitfinex report indicates that Bitcoin open interest outperformed that of the entire cryptocurrency market, with the capital outflows in the crypto market hitting $55 billion in early August. This affected the price of Bitcoin and Ethereum, among other altcoins, with stablecoin liquidity dropping as crypto charts flashed red.

Based on the report, the last time such bearishness was indicated in the market was in November 2022, when Sam Bankman-Fried’s FTX empire imploded.

Aggregate market realized value net position change

The capital outflow plunged the market into a liquidity crunch, as per the report, leaving Bitcoin price susceptible to event-based volatility. This means that isolated events could drive the market, evidenced by the August 17 incident that saw markets crash on speculation that Space X was selling its Bitcoin holdings.

It was also the time when China’s second-most prominent real estate giant, Evergrande, filed for Chapter 15 Bankruptcy protection in New York. At the time, up to $820 million long positions were liquidated across the market.

Another event that drove the market wild was the August 29 victory for Grayscale in its longstanding case against the US Securities and Exchange Commission (SEC), giving a standing chance in court for its GBTC to ETF request.

Citing an excerpt from the report:

We believe that while volatility metrics continue to be low, the liquidity crunch in the market has allowed isolated events to have a bigger impact on market movements.

Bitcoin price remained bearish for most part of August amid surging open interest and subsequent increases in liquidations. Ethereum price recorded a similar market outlook, causing investors to wonder whether it was the work of manipulators.

As it stands, the trend continues to prevail, with Bitcoin price still moving within a small range; volatility remains low. This has investors exercising excessive caution even as the market craves for impulse.

Liquid supply corresponds to short-term holders who are at the forefront of market movements, actively responding to price fluctuations. In the same way, illiquid supply reserves correspond to the long-term custodians (holders).

The stance of these stakeholders towards Bitcoin is one of unwavering allegiance, with their strategy being to gradually accumulate during times of market downturns and take partial profits or none at all during market tops.

The August 17 crash and August 29 Greyscale victory remain evidence that event-based volatility has returned to crypto. While volatility metrics continue to be low, the liquidity crunch in the market has allowed isolated events to have a bigger impact on market movements.

Crypto ETF FAQs

What is an ETF?

An Exchange-Traded Fund (ETF) is an investment vehicle or an index that tracks the price of an underlying asset. ETFs can not only track a single asset, but a group of assets and sectors. For example, a Bitcoin ETF tracks Bitcoin’s price. ETF is a tool used by investors to gain exposure to a certain asset.

Is Bitcoin futures ETF approved?

Yes. The first Bitcoin futures ETF in the US was approved by the US Securities & Exchange Commission in October 2021. A total of seven Bitcoin futures ETFs have been approved, with more than 20 still waiting for the regulator’s permission. The SEC says that the cryptocurrency industry is new and subject to manipulation, which is why it has been delaying crypto-related futures ETFs for the last few years.

Is Bitcoin spot ETF approved?

Bitcoin spot ETF has been approved outside the US, but the SEC is yet to approve one in the country. After BlackRock filed for a Bitcoin spot ETF on June 15, the interest surrounding crypto ETFs has been renewed. Grayscale – whose application for a Bitcoin spot ETF was initially rejected by the SEC – got a victory in court, forcing the US regulator to review its proposal again. The SEC’s loss in this lawsuit has fueled hopes that a Bitcoin spot ETF might be approved by the end of the year.

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