Open Interest Hits All Time Highs as BTC nears $20,000

As bitcoin gains global recognition, regulators have begun to take aim at the thriving stablecoin sub-sector, which could end up playing against the spirit of decentralised cryptocurrencies.

Meanwhile, open interest in bitcoin has reached new all time highs. This is a cautionary tale if I’ve ever seen one.

Let’s dig in.

Regulators to bring stablecoin issuers into the banking fold?

The US office of the Comptroller of the Currency’s chief economist, Charles Calomiris, said in a paper titled ‘ Chartering the FinTech Future’ that regulation is needed in the stablecoin space and that companies would benefit from obtaining national bank charters.

In the paper, he argues that the “ traditional chartered banking system wallows in a state of unprofitability and inefficiency,” and that fintech companies basically have the solution to the banking woes they created.

The OCC is the US banking regulatory office that is lead by Brian Brooks, a former executive at Crypto exchange Coinbase.

In one excerpt, he wrote: “I do, however, believe that there are several identifiable advantages from doing chartering stable value cryptocurrency providers with safe and sound business models as national banks.”

It’s safe to point out that this paper is directly referring to the largest stablecoin issuer in the industry — Bitfinex-owned Tether.

The greatest concern of increased oversight is the prospect of more friction within the cryptocurrency sector — which still operates under a more or less seamless no-questions-asked experience (save mandatory KYC processes on some exchanges).

To this day, traditional finance is bogged down in an endless system of red-tape and cumbersome processes that originated in the ‘70's.

Here in Malta, the Bank of Valletta still prints emails, or so I’ve heard. But that pales in comparison to arguably the biggest flaw in the status-quo-banking system, which is that your cash is simply an IOU.

It is this system that cryptocurrencies are re-inventing, and stablecoins are the bridge that enables this transition — right up to the point where central-bank-owned fiat currencies are no longer necessary.

Certainly, more regulation is coming and people like Rohan Grey, who introduced the controversial STABLE Act in the belief that stablecoins pose a system risk — would like nothing more than to retain the status quo. However, there can be no denying that those involved in the bitcoin and crypto space want to get as far away from traditional banks as possible, not closer.

Since 2019, we’ve seen regulator interest in stablecoins increase, so much so that central bankers are now eagerly working on rolling out their own Central Bank Digital Currencies, and might even cause the collapse of the private banking system by default.

It’s not controversial to say that bitcoin was born out of the recognition that this banking system does not work.

In an ideal world, this sentiment ought to be recognised within any legal propositions moving forward. Not doing so risks undermining the trust stablecoin suppliers have while bolstering the need for decentralised exchanges such as Uniswap.

Technically speaking

Bitcoin enters dangerous waters as it closes in on $20,000

Open interest in bitcoin futures exchanges has hit all-time highs per data from Coinalyze. The last time this happened was on November 25th, just before the crypto plunged 16%.

In fact, every time open interest peaked, the market witnessed a ‘pump and dump’ scenario before continuing the grind higher.

If history is a guide, then caution on futures exchanges is not only warranted but desirable (for those who value their bitcoin).

In the event that bulls get rug-pulled again, then it’s entirely possible for price to re-test the upwards-trending support delineated below.

This situation is not ideal as persistent trendline retests eventually lead to a breakdown, which could trigger a major sell-off event.

However, given the broader macro-situation where bitcoin is basically hugging all-time high resistance within an ascending triangle structure, it’s reasonable to anticipate bitcoin’s technical and fundamental data to truly shine in the next few days and weeks.

Indeed, a $20,000 bitcoin this month is not a particularly grand call to make, but in light of open interest data, I fully expect bitcoin to trade both above $19,600 (possibly short-lived) and below $18,900 before finally breaching all-time highs.

Levels to watch

  • $18,300-$18,550 support cluster
  • $19,800-$20,000 resistance (possible bull trap)

At the end of the day, futures markets are effectively liquidation plays in a much larger game. Short term bitcoin volatility does not matter too much in the grand scheme of things.

Onward bitcoin Spartans!

Catch you next time.

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Chris on Crypto

Journalist-turned crypto-writer & analyst; forging the narrative, stacking sats.