False Alarm? Bitcoin Upsurge to $9,600 Is a Weak Futures Driven Rally

The price of Bitcoin rose to as high as $9,620 on May 28 ahead of the CME futures market's monthly close.

Market data shows the rally of BTC - the biggest cryptocurrency by market capitalization - was primarily caused by the futures market.

Bitcoin futures open interest rose while spot market volume fell.

The most noticeable evidence that suggests the futures market was behind the uptrend of Bitcoin from $8,700 to $9,600 is the increase in the open interest of BTC contracts.

On BitMEX and OKEx alone, $1.6 billion worth of Bitcoin futures contracts are currently open.

In the last four days, the open interest of BitMEX increased from $500 million to $800 million, increasing by around 60%. Since early May the spot volume of Bitcoin on Coinbase and LMAX declined from $600 million to around $150 million per day.

Futures exchanges like BitMEX and Binance support maximum leverage of up to 125x. That means traders can trade Bitcoin with large amounts of borrowed capital.

When the price of Bitcoin sways in the opposite direction than the majority of positions in the futures market, it can trigger a cascade of liquidations.

On May 23 and 27, the $8,800 to $8,900 price range acted as support, allowing Bitcoin to rally to above $9,600.

For now, due to the high level of activity in the futures market and the rejection of Bitcoin at $9,600, traders are seemingly taking a cautious approach.