Falling Volume in CME BTC Futures Presaged Decline
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The falling volume in CME BTC (BTC) futures in early March indicated the market was due for a correction, says a Forbes report.
Recently, BTC reached a new all-time high just under $65,000 in light of Coinbase’s listing on the Nasdaq. However, the market failed to consolidate those gains, as the next week BTC fell below $50,000.
According to a Forbes report, the spike BTC saw from Coinbase may have been a short-term anomaly. It says that open interest (OI) in BTC futures on CME had been declining since the beginning of March. This means that institutional interest may be temporarily waning, and a correction was inevitable, the report says.
Institutions’ influence
According to data from the report, hedge funds reduced their short positions by 4,800 BTC, which was equivalent to 10% of all BTC OI the week before. They also reduced their long positions by 1,990 BTC.
Because these larger institutions provide a significant amount of liquidity on crypto exchanges, their actions are indicative of the market as a whole. As the report details, “their reduced appetite for buying or selling BTC forward reads like a strategic reduction in their collective BTC exposure.”
The report points out that the daily volume on the crypto spot market, which is primarily retail, exceeds $100 billion. Although much smaller in daily volume, only $3billion to $4 billion, CME BTC futures activity is a barometer of “institutional risk-taking appetite.” Since larger institutions contributed significantly to BTC’s bull run last year, the figures offer a measure of current market sentiment.
Near-term outlook
Despite BTC prices rising back to $55,000, the report remains skeptical about its near-term prospects. It cites CME BTC futures market and technical analysis signals as negative indicators, until there is more renewed interest.
“The net reduction in OI can be seen as institutions reducing bets until spot BTC price action brings in more participants,” the report summarizes.
However, the report emphasizes that the futures market data doesn’t suggest long-term bearishness for BTC. It concludes with several signs that may reverse BTC’s prospects. The first is naturally BTC futures picking up volume again. Another is an increase in market participants, similar to what was seen last year. Finally, a last positive indicator would be BTC closing the week above $56,000.
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