Caution is the ‘modus operandi’ for markets: K33

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I’m quite intrigued by the cautious atmosphere that’s been adopted since bitcoin broke through all-time highs last month. 

K33 noted that CME exposure has “risen modestly,” but it’s nowhere near its previous peaks. 

Source: K33

As you can see in the chart above, open interest for CME bitcoin futures is in a slight downtrend.

The good (and potentially risky) news is that “offshore perpetual markets have seen growing open interest nearing late 2024 highs, but with ambiguous funding rates, setting the stage for heightened liquidation risks and potential volatility spikes in both directions.”

Overall, the derivatives environment has gotten a bit of a chill despite us heading into summer, with analyst Vetle Lunde noting that the perpetual future open interest dropped by 15,000 bitcoin since the end of May. The silver lining here, though, is that overall we’re seeing open interest remain near April highs at 278,000 BTC. 

I know what you’re thinking: Data insights are great, but what do they mean?

As I mentioned in Monday’s Empire , May can be a seasonally weaker month, which leads into the summer months when everyone is busy (hence “sell in May and go away,” if you’re familiar with traditional markets). 

So let’s zoom in on CME here.

“While exposure from both direct participants and leveraged ETFs on CME has seen an uptrend over the past month, both cohorts see considerably lower exposure than during prior activity peaks. This is indicative of broad passivity and modest froth, despite BTC’s solid performance over recent months,” Lunde noted. 

However, notional open interest in bitcoin perpetuals was on the rise, and remains on an uptrend…something that could — like we noted above — suggest potential volatility. 

“There is no clear one-directional bias to read into this activity. In essence, this creates a structure that enhances liquidation risks in either direction thus setting the stage for accelerated volatility ahead,” Lunde wrote. 

Basically, prepare yourselves for volatility, because it’s crypto and, well, that’s par for the course here. But keep in mind we’re heading into the seasonally weaker summer months.

With the hefty amount of institutional interest we’ve witnessed, there is a possibility that we see crypto act a bit more like the traditional markets during seasonally weaker months. 

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