Polkadot futures open interest hits $ 1 billion as DOT price hits new ATH

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On March 24, Polkadot’s DOT token price corrected 23% in a brief six-hour period, resulting in $ 174 million in sell-offs in the futures market. This rapid bearish movement also reduced overall open interest by 26%.

Now that open interest in DOT climbs to a new high of $ 1 billion, investors may be worried about another price slump.

DOT / USDT on Binance. Source: TradingView

Although the event severely affected long-indebtedness at the time, the token managed to rally 46% in 10 days, hitting an all-time high of $ 46. The explosive gain caused investors to quickly regain their confidence, and open term interest has now reached an all-time high of $ 1 billion.

Recently, KwikSwap, a decentralized exchange, expressed interest in using Polkadot’s layer two solution to reduce costs and increase transaction throughput. These could be some of the fundamental reasons for the increase in prices and the opening of futures markets.

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The March 24 price cut was not DOT specific, with altcoin’s market cap plunging 10% during that time. TBEN reported that the FUD events – fear, uncertainty and doubt – put pressure on cryptocurrency markets, including large futures and options expiring on March 26.

Nonetheless, DOT’s 23% correction was much larger than most altcoins, and the reason behind that could lie in its $ 844 million open term interest on March 24. $ 662 million.

The impact of liquidations depends on the liquidity of the markets at that time. However, aggregate DOT offers rarely exceed $ 15 million. Thus, open interest of $ 844 million was more than 50 times that number.

The top 10 cryptocurrencies combine supply and demand on April 5. Source: Cryptowatch

Cryptowatch provides a tool to aggregate trade offers and requests, although there is no history available for this data. The website considers all orders visible with a difference of 1% from the last transaction.

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Using the numbers from April 5, one can see how “illiquid” DOT’s books were compared to XRP and Litecoin. According to data from Staking Rewards, 65% of circulating DOTs are locked into staking mechanisms. Whatever the reason for the smaller offers, it creates potential risk during relevant closeouts.

DOT futures aggregate open interest. Source: Bybt

Over the past two months, open interest in DOT futures has doubled, becoming the second largest derivatives market behind Bitcoin (BTC) and Ether (ETH). Thus, investors have reason to worry about the liquidation impact of an unexpected price drop.

As the DOT futures markets develop over time, it should bring more liquidity to the spot exchanges. Arbitrage opportunities will present themselves, and investors will find that cumulating bids 5% or 10% below the market is profitable. So, it could be a matter of time until the mismatch narrows between the open interest of futures contracts and the aggregate bids 1% below the price.

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Several indicators make a bullish case for DOT

The VORTECS ™ score, exclusive to TBEN, is an algorithmic comparison of historical and current market conditions derived from a combination of data points, including market sentiment, trade volume, recent price movements and Twitter activity.

VORTECS ™ score against the DOT price (white). Source: TBEN Markets Pro

In addition to the surge in open interest on major derivatives exchanges, the VORTECS ™ score rose to 75 on April 1. Over the next two days, the DOT price managed to rebound 22% to $ 46.60.

The DOT’s “turnaround” of XRP and Litecoin’s future indicates that investors are much more interested in Polkadot’s scalability and interoperability potential compared to its competitors’ more targeted protocols.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of TBEN. Every investment and trading move involves risk. You need to do your own research when making a decision.