The cryptocurrency market is showing signs that sentiment is shifting. Key metrics like futures open interest and on-chain liquidity show that investors are moving toward a risk-off approach.
Since Bitcoin’s all-time high, futures open interest has dropped significantly—from $57 billion to $37 billion—for a 35% decrease. This decline in open interest signals a much more subdued market. It’s one where traders and investors are acting with more restraint, paring back a formerly bigger presence in the crypto space.
In futures open interest, we see the same contraction that seems to be a part of the recent trend of the crypto space.
Futures open interest has dropped from $57B to $37B (-35%) since #Bitcoin’s ATH, signaling reduced speculation and hedging activity. This decline mirrors the contraction seen in on-chain liquidity, pointing to broader risk-off behavior. pic.twitter.com/XPbXiHXlRS
— glassnode (@glassnode) March 20, 2025
That overall crypto trend? Decreasing liquidity.
Everybody’s very careful right now, and it seems like liquidity in the open futures market is being reduced almost as much as the open interest itself. And you better believe that if we’re seeing a contraction right now in the open futures market for Bitcoin, then that’s likely going to have some kind of effect on the price of Bitcoin in the near future.
Contents
A Shift in Speculation: The Decline in Futures Open Interest
One of the clearest signs that market sentiment is changing is the drop in futures open interest. Futures open interest shows us the total number of contracts that are still in play, and when we look in on it these days, it doesn’t look so healthy. There’s now about $37 billion in open interest, down from about $57 billion not so long ago (and with it, an attendant level of speculation and hedging). You might reasonably ask: What’s going on? And we might reasonably answer: We don’t know.
A 35% drop from Bitcoin’s all-time high (ATH) shows that a lot of traders have been pulling back on their leverage. Since futures contracts allow you to take much larger positions and bet on price moves either way, even with borrowed money, a drop in open interest could mean we’re not betting on significant price moves as much as we were.
Meanwhile, the falling futures open interest also reflects the decline in on-chain liquidity. A contraction of this kind means that the market is not as liquid as it used to be, and that presents the appearance of riskier assets. That is because less liquidity equals more volatility, and when we are on the edge of a market breakdown, it makes sense for traders and investors to go for the appearance of cash or less risky assets.
Cash-and-Carry Trade Unwinding: ETF Outflows and CME Futures Closures
One of the factors contributing to the decline in futures open interest is the unwinding of the cash-and-carry trade. This strategy, which was used by institutional investors, involved buying Bitcoin in the spot market while selling futures contracts. It was a way to hedge and also a way to generate returns from the difference between the spot and futures prices. But now that the bullish sentiment is not what it was, the long-side bias that fueled the cash-and-carry trade has also not been what it was, and so this trade is happening less.
Alongside the unwinding of cash-and-carry trades, ETF outflows, and CME futures closures, a notable trend has emerged: Exchange-Traded Funds (ETFs) are losing assets. Viewed as the next-best entry point into crypto for institutional investors after futures contracts, ETFs have shed $1.2B since March 31. That’s not quite a death knell, but it could get a wee bit noisier before it gets better.
As far as I’m concerned, ETF outflows are way more significant than their shedding assets might imply (I’ll explain more below). Nevertheless, this marks a shift in investor positioning.
Selling pressure in the spot markets is compounded by closures of futures contracts on the Chicago Mercantile Exchange (CME). The CME is one of the largest exchanges for Bitcoin futures, and when it closes down futures contracts—especially on a day when the exchange is otherwise closed for trading, as it was on Monday in November 3, 2021—this can signal a further retreat of institutional players from the Bitcoin space.
When futures contracts are closed, traders may need to liquidate positions to match the closure of the futures contracts, which means there’s more pressure on the underlying asset to move lower. This overall dynamic was happening alongside a drop in open interest in Bitcoin.
Open interest was down about 15 percent on the week, and when that number drops, it can also lead to a downwards price move in the spot market.
Volatility Ahead: What This Means for the Crypto Market
A sentiment shift in the crypto market may be underway. This is suggested by the combination of falling futures open interest, ETF outflows, and the closure of futures at the CME. Traders look to the futures market when they have directional trades they want to put on. Falling open interest therefore suggests that either traders aren’t using the market anymore or that they’ve started to close up their positions and are moving in the other direction. Futures market traders tend to be speculators. And as these folks unwind futures trades and hedge against downside price risks in Bitcoin, Ethereum, and other cryptos, they’ve been tightening up the whole crypto market by reducing liquidity.
In the short term, this could lead to a surge in volatility as the unwinding of leveraged positions generates sudden price changes. Furthermore, the drop in futures open interest and the outflows from ETFs could produce a market climate in which institutional investors are less involved, rendering the market more responsive to the kind of price changes that retail traders and algorithmic trading send it.
For long-term investors, the present market mechanics may offer both chances and difficulties. On the one hand, the decline in futures open interest suggests that we are seeing less of the kind of frivolous buying and selling that characterizes a speculative market. On the other hand, that same decline may also indicate that we are entering a phase in which the market as a whole is more locked up and isn’t doing much. If that’s the case, we could be in for a rather boring market until speculative forces start to push things around again.
The cash-and-carry trades that are now unwinding—and the not-so-secret reduction in institutional participation—may suggest that the real lack of activity in the crypto space is beginning to affect market makers. Market makers and other larger entities seem unsure about the near-term future of Bitcoin and other cryptocurrencies. In any event, investors would be wise to keep a close watch on both the goings-on in the crypto space and the trading conditions in the markets at large.
Conclusion: Risk-Off Sentiment Dominates
The most recent decline in the open interest of crypto futures, together with many other indicators of reduced speculative activity in this market, is pointing to an evolving risk-off sentiment. This is what a retreat by speculative positions can look like.
It isn’t just a reduction in open interest that is making the futures market look less…
While the market deals with these changes, investors will need to stay alert and ready for possible price movements. The tightening liquidity and the repositioning of institutions in crypto suggest that the market could be more uncertain for the next few months. Once this period of volatility passes, however, we could well see new opportunities for those investors who have the patience to wait and the persistence to find their way amid the evolving landscape.
Disclosure: This is not trading or investment advice. Always do your research before buying any cryptocurrency or investing in any services.
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