Spot Market Activity Fuels Bitcoin's 14.5% Surge to a 20-Month High
Summary:
In the past week, Bitcoin (BTC) increased by 14.5%, reaching a 20-month peak of $41,130. Despite the $100 million liquidation of Bitcoin futures within 24 hours, an evaluation of Bitcoin derivatives data indicates significant activity in the spot market. With the futures market remaining relatively calm and no signs of massive sell-offs should Bitcoin surpass the $43,000 threshold, the recent surge appears to be primarily fueled by spot market accumulation and reduced coin availability on exchanges.
Over the past week, Bitcoin (BTC) surged by a staggering 14.5%, reaching a 20-month peak value of $41,130 by December 4th. This has fueled much excitement and numerous possibilities among traders and analysts, particularly following the $100 million liquidation of bearish Bitcoin futures within a single day. However, reviewing the Bitcoin derivatives data reveals another narrative, indicating that the actual action occurred in the spot market.
As for the effect of the recent Bitcoin futures liquidations, while the Chicago Mercantile Exchange (CME) offers USD-settled Bitcoin futures contracts with no physical Bitcoin involved, there is no doubt that these futures markets have considerable influence on spot prices. The sheer size of Bitcoin futures, with a combined open interest of $20 billion, shows professional investors' mounting interest. In comparison to this, only $200 million worth of BTC futures shorts were liquidated during the same week, comprising only 1% of the total outstanding contracts. This number is dwarfed by the significant $190 billion trading volume over the same period.
Even when the attention is focused on the CME, which is often linked to potential trading volume inflation, its daily volume of $2.67 billion could have easily absorbed a $100 million 24-hour liquidation. This prompted investors to question whether the recent Bitcoin rally might be the result of targeting a few significant figures in the futures markets.
Various factors must be considered when attempting to measure liquidations at differing price points, such as whether whales and market makers are sufficiently hedged or able to add more margin. Even with Bitcoin's meteoric ascension to a 20-year peak, futures and options markets seem rather calm. Three significant pieces of data indicate that there's no strong reason to expect a wave of short contract liquidations if Bitcoin soars beyond the $43,500 level.
With Bitcoin's value escalating by 14.5% within a week and only $200 million worth of short futures contracts getting liquidated, questions emerge about whether bears used cautious leverage or continuously beefed up their margin deposits to protect their positions. Considering the funding rate and futures basis rate, there's no clear sign that exceeding the $43,000 level would lead to massive sell-offs. In essence, the recent rise is primarily supported by spot market accumulation and a decrease in the available coin supply on exchanges. Throughout the past week, exchanges reported a net drainage of 8,275 BTC, as per Coinglass data.
[This news article should not be interpreted as legal or investment advice. The opinions, thoughts, and views expressed here solely belong to the author and do not necessarily mirror or represent the views and judgments of Cointelegraph.]
Published At
12/4/2023 5:26:07 PM
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