There was a time when BitMEX derivatives exchange reigned sovereign over other exchanges, and the company effectively held a 50% market share until July 2019. For this reason, traders kept a close eye on every indicator connected to BitMEX, including its funding rate, open interest, and basis.
Open interest measures the total number of contracts held by market participants. As the figure rises higher, so does the potential size of liquidations. On Aug. 2, a $1,400 crash happened as $1 billion in futures contracts were forcefully closed due to insufficient margins.
Although there is no magic number, traders tend to get shaky as open interest nears $1 billion, causing a phenomenon some traders refer to as the BitMEX ghost. This became evident during the second half of 2019, when massive Bitcoin price crashes occurred on seven different instances when open interest tops $1 billion.
The perceived risk associated with high open interest depends on how liquid the underlying asset is….