Bitcoin's Open Interest Decline and the Emerging Bullish Setup Amid Fiscal Uncertainty

The Open Interest Decline: A Signal of Risk Aversion

Bitcoin's open interest-a critical barometer of market liquidity and speculative fervor-has plummeted by 30% since its October 7 peak, standing at $66.54 billion as of November 18. This decline follows a catastrophic $19 billion wipeout of positions during the October 10 flash crash, which saw open interest drop from $220 billion to $140 billion. While this contraction initially signaled capitulation, it also reflects a broader de-risking of leveraged positions. Derivatives volumes, which spiked to $748 billion on the crash day, have since stabilized around $300 billion daily, indicating a more balanced, less volatile environment.

The reduction in open interest is not merely a function of panic selling. It reflects a structural shift in market behavior. Traders are avoiding aggressive longs, with perpetual futures funding rates across major exchanges remaining subdued. Meanwhile, options data reveals a mixed outlook: bullish call options at the $140,000 strike price total $1.1 billion, yet bearish put contracts dominate the options market, with elevated implied volatility levels. This duality suggests a market in transition-neither fully bearish nor bullish, but cautiously positioned for a potential rebound.

Fiscal Policy Uncertainty and the Macroeconomic Backdrop

China's fiscal policy trajectory in 2025–2026 adds another layer of complexity. The country has announced a "stronger and more proactive" fiscal strategy, including expanded budget deficits, ultra-long-term sovereign bonds, and targeted subsidies for manufacturing and technology sectors. These measures aim to counteract a slowdown in domestic demand and a contraction in exports amid rising U.S. tariffs. While such policies could stimulate global growth, they also introduce uncertainty. For instance, China's 2025 fiscal deficit expanded to 4% of GDP (up from 3% in 2024), yet analysts argue this may only partially offset the drag from trade tensions.

Bitcoin's market, which is inherently sensitive to macroeconomic shifts, has absorbed these signals. The cryptocurrency's price action in November reflects a tug-of-war between optimism over China's stimulus and skepticism about its efficacy. However, Bybit's Max Xu has noted that favorable macroeconomic conditions-such as rate-cut expectations-could catalyze a recovery in open interest to pre-crash levels by mid-2026. This timeline hinges on the resolution of trade tensions and the successful implementation of China's fiscal plans.

The Emerging Bullish Setup: Positioning and Institutional Confidence

Despite the bearish overhang, subtle bullish signals are emerging. One key indicator is the positioning of institutional investors. Ark Invest, for example, has increased its exposure to crypto-related assets by purchasing $10.2 million worth of Bullish shares across three ETFs in late November. This move aligns with the firm's broader strategy to capitalize on the crypto ecosystem's maturation, particularly in exchanges and fintech infrastructure. Bullish's recent financial performance-$108.3 million net income in Q2 2025-further underscores growing institutional confidence.

Additionally, the options market hints at a potential inflection point. While bearish puts dominate, the $1.1 billion in bullish call options at the $140,000 strike price suggests that some market participants are hedging for a rebound. This asymmetry in positioning could create a self-fulfilling dynamic: as open interest stabilizes and macroeconomic conditions improve, the $140,000 level may act as a catalyst for a rally.

Conclusion: A Precarious but Potentially Rewarding Path Forward

Bitcoin's open interest decline has created a low-volatility environment, but it has also cleared the way for a more sustainable market structure. The interplay between reduced leverage, cautious positioning, and macroeconomic tailwinds-particularly China's fiscal stimulus-sets the stage for a potential recovery. While fiscal uncertainty and trade tensions remain headwinds, the emerging bullish setup-driven by institutional confidence and strategic options positioning-suggests that the worst may be behind.

Investors should monitor two key metrics in the coming months: the trajectory of open interest and the execution of China's fiscal plans. If macroeconomic conditions stabilize and open interest rebounds as projected, Bitcoin could retest critical resistance levels in early 2026. For now, the market is in a holding pattern, but the seeds of a bullish narrative are taking root.