What gives? Bitcoin futures open interest is at a 2023 high, yet BTC trading volume is at an annual low

Although BTC futures open interest is increasing, Bitcoin trading volume implies that traders' attention has gone to other markets.

Bitcoin traders are now dissatisfied with recent price movements, particularly the currency's inability to reach the $30,500 level during the previous four weeks. This annoyance is exacerbated by the fact that some petitions for spot Bitcoin exchange-traded funds (ETFs) have been postponed or are being reviewed by authorities.

Surprisingly, there has been a substantial spike in open interest for Bitcoin futures contracts, indicating growing demand from institutional traders. However, activity in the derivatives markets has been sluggish. This disparity in market dynamics has created a mixed feeling among investors, making it difficult to generate enough momentum to trade at or above the $31,000 level.

Bitcoin 1-day price index in USD. Source: TOPONE Markets

Many observers attribute the lack of buyers propelling Bitcoin beyond the $30,000 level to allegations that the US Department of Justice is mulling fraud charges against Binance. Furthermore, the Securities and Exchange Commission of the United States and the Commodity Futures Trading Commission are also pursuing legal action against the exchange and its creator, Changpeng "CZ" Zhao.

The dissatisfaction of Bitcoin investors can be explained in part by macroeconomic causes.

Taking a larger perspective of the issue, there is further concern about a probable global economic slowdown caused by central banks' efforts to contain inflation. The most current core Consumer Price Index numbers in the United States, which exclude food and gas costs, showed a 4.7% increase over the previous year, following a 4.8% gain in June. This data supports continued efforts to tighten the economy by favoring fixed-income, short-term bonds, and cash positions.

As a result, despite expectations that the Federal Reserve would keep the interest rate ceiling at 5.5% at its September meeting, investors lack impetus to raise their holdings in risk-on markets. This hesitancy derives from the increased risk of a recession, as seen by a 1.4% year-on-year decrease in eurozone retail sales in June and the U.S. ISM Manufacturing PMI registering at 46.4 in July, indicating a state of contraction.

When using the price as an indicator, it is clear that Bitcoin investors are currently lacking confidence in the chances of a spot ETF approval in the near future. At the same time, there is a noticeable feeling of pessimism regarding Binance's ongoing legal problems and the possible ramifications of these struggles. Whatever the cause, the overall trend of Bitcoin's price over the last 50 days has been mostly negative, with numerous trips near the $29,000 support level.

Bitcoin derivatives are critical for price direction.

The Bitcoin futures market is quite important in the trading scene. This market includes cryptocurrency-only derivatives exchanges such as Binance, Bybit, and OKX, as well as established traditional financial platforms like the Chicago Mercantile Exchange. Futures contracts are essentially financial arrangements between two parties in which actual BTC does not change hands. However, the allure of leverage allows this market to outperform traditional buying and selling volumes.

Bitcoin futures aggregate open interest in USD. Source: CoinGlass

According to CoinGlass statistics, trade activity in this market reached around $14.5 billion on August 8, surpassing levels similar to those seen in May 2022. These contracts, it may be claimed, are constantly balanced between buyers (longs) and sellers (shorts). However, the market's development allows larger-scale investors to engage and draws traders using diverse tactics, such as "cash and carry" techniques and miners seeking risk reduction.

Nonetheless, the rising number of active contracts, as evidenced by open interest, does not always imply higher trading activity in the futures market. In actuality, the volume connected with Bitcoin futures has been declining over the last seven months.

Bitcoin futures aggregate volume in USD. Source: Coinalyze

According to recent statistics, BTC futures trade volumes have plunged to their lowest levels since December 2022, averaging less than $7 billion per day. This implies that traders are either completely protected against risks and are unwilling to make additional moves at present price levels, or they have turned their emphasis to other markets with more volatility or a higher likelihood of big changes.

The problem comes down to this: Until there is unambiguous confirmation of the ETF decision and more defined regulations for exchanges like Binance and Coinbase as a result of their fights with authorities, traders employing Bitcoin derivatives don't appear to have much desire to conduct more deals. These important occurrences, along with the larger economic uncertainties, explain why trading activity is down, even if more individuals are keeping an eye on the situation and the price remains stuck around $29,500.