Over the past seven days, Bitcoin (B T c) saw a massive surge of 14.5%, reaching a 20-month high of $41,130 as of December 4. Traders and analysts are abuzz with speculation, especially in the wake of the liquidation of $100 million of short (bearish) Bitcoin futures in just 24 hours. , However, when we dive into the BTC derivatives data, a different story emerges – one that focuses on spot market action.
btc liquidation map
Enough shorts to drive it to $45-46k pic.twitter.com/7O2zYD4j8Q
– Nik Algo (@nik_algo) 4 December 2023
Impact of recent liquidations on Bitcoin futures markets
While the Chicago Mercantile Exchange (CME) trades USD-settled contracts for Bitcoin futures, where no physical Bitcoin changes hands, these futures markets undoubtedly play an important role in shaping spot prices. The sheer scale of Bitcoin futures, with total open interest of $20 billion, underlines the keen interest of professional investors.
Over the same seven-day period, only $200 million worth of BTC futures shorts were liquidated, which is just 1% of total contracts outstanding. This figure is much lower than the trading volume of $190 billion during the same time frame.
Even when focusing solely on CME, which is known for potential trading volume inflation, its daily volume of $2.67 billion could easily exceed $100 million 24-hour liquidations. Must absorb. This has led investors to consider whether the recent Bitcoin rally could be attributed to the targeting of some whales in the futures markets.
$BTC next possible plan
A quick wick of 42k-42.5k to hunt the BSL of shorts, then a quick flushout of longs and we could see $BTC pull back to 39k-38.5k
Retracement till 39k-38.5k will be a good buying opportunity for the last leg till 45k-47k before ETF approval. pic.twitter.com/yc7k0hOBpZ
– Wella Crypto (@VellaCryptoX) 4 December 2023
One can try to estimate the extent of liquidations at different price levels using the tape reading technique. However, this approach fails to consider whether whales and market makers are adequately protected or have the ability to accumulate additional margin.
Despite Bitcoin hitting a 20-month high, futures and options markets appear to be relatively subdued. In fact, three key pieces of evidence suggest that there is no compelling reason to expect a cascade of short contract liquidations if Bitcoin crosses the $43,500 threshold.
Bitcoin derivatives show no signs of excessive optimism
Perpetual contracts, also known as inverse swaps, include an embedded rate that is typically recalculated every eight hours. A positive funding rate indicates an increased demand for leverage between long positions, while a negative rate indicates a need for additional leverage between short positions.
The data showed a peak of 0.04% per eight hours earlier on December 4, but this level, equivalent to 0.9% per week, proved short-lived. The current 0.4% weekly rate puts minimal pressure on longs seeking leverage, indicating a lack of urgency among retail traders. In contrast, bears show no signs of exhaustion.
To evaluate whether Bitcoin perpetual swaps represent an anomaly, attention turns to BTC monthly futures contracts, which are favored by professional traders for their fixed funding rate. Typically, these contracts trade at a premium of 5% to 10% given their extended settlement periods.
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BTC fixed term futures contract data shows the highest premium was 12% on December 4, currently at 11%. This level remains reasonable, especially given the current uptrend. Premiums surged more than 30% in historic rallies in 2021, further challenging the notion of a rally driven primarily by Bitcoin derivatives.
Ultimately, with the price of Bitcoin rising 14.5% in just seven days and only $200 million worth of short futures contracts expiring, the question arises whether bears used conservative leverage to protect their positions or diligently margined. Deposits increased.
When considering the funding rate and futures base rate, there is no clear indication that crossing the $43,000 mark will result in substantial stock losses.
In short, the recent surge has been supported by spot market accumulation and a decline in the available supply of coins on exchanges. According to Coinglass, exchanges recorded a net outflow of 8,275 BTC last week.
This article is for general information purposes and should not be construed as legal or investment advice. The views, opinions and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
