The recent volatility in Bitcoin had a significant impact on the derivatives market. Between June 23 and June 27, BTC dropped from above $64,000 to $60,000, briefly dipping below that mark before recovering on June 25.
While a 6% drop may not seem substantial in the long-term, falling below $60,000 marked an important milestone for traders. This drop had a notable effect on derivatives, with open interest in Bitcoin futures decreasing from $33.33 billion on June 23 to $31.39 billion on June 27, reaching its lowest point since May 17.
Forced liquidations were the main reason for this decrease in open interest. As the price of Bitcoin fell sharply, many traders with leveraged long positions likely faced margin calls and had their positions liquidated. This added to selling pressure and further decreased open interest.
The decrease in futures market activity contrasted with the growth in the options market. Open interest in Bitcoin options increased from $20.28 billion on June 23 to $21 billion on June 26, showing that traders turned to options as a hedge against potential price volatility.
The rise in options open interest indicates that traders were positioning themselves to manage risk and prepare for increased market volatility. CoinGlass data revealed that a majority of options open interest consisted of call options, indicating a bullish sentiment and traders positioning for price recovery.
Arbitrage opportunities between spot, futures, and options markets likely contributed to increased options trading activity. Institutional involvement and volatility trading also played a role in the spike in options open interest.
The shifts in futures and options open interest demonstrate how traders adapt their risk management strategies in response to market fluctuations. While futures traders reduced their exposure amid liquidations and risk aversion, options traders increased their exposure for hedging and speculation purposes.
