Bitcoin open interest on CME goes through its largest drawdown in history

Bitcoin (BTC) open interest on CME saw its biggest drawdown in all of the trading history of the futures. Traders have been unwinding from the peak, taking $10B off the market in the past three months. 

The open interest on CME has been unwinding in the past 90 days, going through its biggest drawdown in history. Mainstream traders for the cash-settled futures achieved peak liquidity around December 15, 2024, when BTC traded at its all-time high above $109,000. 

After that, the futures market has been unwinding, with the exception of January’s peak in open interest. Institutional investors have been unwinding their positions in the past months, reflecting the overall decline of BTC from the peak. As BTC climbed to an unprecedented peak, the market was facing uncharted territory with peak open interest. 

On a one-month basis, the decline is much slower. Weekly trading data shows a short-term return of traders. The CME indicators taken together may signal a potential shift in BTC trading sentiment from a local bottom.

Based on Alphractal data, the past three months reached peak selling pressure for BTC, though in the short term, the downward pressure may be alleviated. The CME deleveraging tracks the overall unwinding of futures positions on crypto exchanges. 

BTC may see sideways trading

One of the reasons for the unwinding of the open interest is the lack of direction for BTC. The possibility of a cycle peak at $109,000 has led to predictions of sideways trading for the months ahead. 

The recent closing of positions comes as BTC attempted a recovery to over $84,000. This price range is considered a potential support level after days of downward pressure. BTC traded at $85,648.21, regaining the range after days of downward pressure. The recent price rally flipped the tables on liquidations, with more shorts liquidated in the past hour. 

The price of BTC remains just 30% below its all-time highs, which is historically a relatively small drawdown. Despite this, it may take a while for both mainstream and crypto futures markets to rebuild their liquidity. 

Crypto action has switched to derivative markets, settled in cash or stablecoins. Leverage now builds up in a tighter range, challenging traders with price moves within a few thousand dollars. 

Crypto market sentiment signals a local low

Bitcoin sentiment according to Alphractal data is near all-time lows, despite the relatively high market price. The bearish sentiment either calls toward further price drops, or to an unexpected upturn. 

The current cycle resembles the late 2023 price action, where sentiment was extremely bearish. Despite the low sentiment, BTC can still outperform and react to positive news. According to the Rainbow Chart, BTC is solidly in ‘Buy’ territory, with another period of accumulation. On the spot market, whales are once again retaining their balances, while retail buyers sell to avoid losses.

The BTC bull market remains intact despite the recent downturn in leveraged positions. The potential for continued gains may remain intact even if BTC dips as low as $64,000, according to the founder and CEO of Alphractal Joao Wedson.

Wedson believes BTC is resilient, but may go through a mini bear market that can keep causing losses for leveraged traders.  

Wedson’s expectations go against the overall bearish sentiment, suggesting that the bear market for BTC may be over. The uncertainty continues, adding to choppy trading and risk-averse strategies. The current market may be offering fake signals and price drops that do not go into a true bear market, suggested Wedson. 

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