Bitcoin continues to see a bullish uptrend across the board, with derivatives market volume witnessing a rise in fortunes. The price of BTC in the futures contract has started to exceed the spot market price indicating that traders are gaining confidence in the derivatives market.
Bitcoin Derivatives Volume Shows Sharp Decline In 2022
Bitcoin is witnessing an extended bearish trend in 2022, resulting in a 60% drop in value and a decline in the volume of bitcoin futures and options. The collapse of FTX in late November further dampened market sentiment, and there was a significant withdrawal from the derivatives market, accompanied by prolonged liquidation and a strong bearish bias.
To put this in perspective, accordingly character from TheBlock, the volume of Bitcoin futures in December 2021 is estimated at $1.3 trillion, based on data from major exchanges. This decreased by more than 50% to $620 million in November 2022, reflecting a decrease in trading volume on major exchanges.
However, this changed in January 2023, with a reversal in Bitcoin’s fortunes as a major factor. The price of Bitcoin has increased steadily recently, reaching $24,000 earlier in the week, and the derivatives market shows a decidedly bullish profile.
Related reading: Breaking: Bitcoin Breaks Above $24,000 For First Time In 2023
On-Chain Data Shows Positive Profits In 2023
According to market analysts ProfChaine on Twitter account, derivatives market reversing with strong short selling and pronounced bullish bias. He further supports his claim with a series of charts showing the evolution of 3-month bitcoin futures on an annualized basis (shown in blue below).
This metric shows the percentage increase or decrease in the average price of a futures contract relative to the spot price. If the trader targets the futures contract with a price higher than the spot price, the rate will be positive, and if the expectation is that the price will fall, the rate will be negative.
As seen in the chart, FTX fell in early November taking the metric to negative as traders pulled out of futures trading. However, there was a significant uptrend in January due to the rise in the value of Bitcoin.
Related reading: Long-Term Bitcoin Holders Now Hold 78% of Supply, Highest Level Ever
Another indicator is the Bitcoin futures open interest leverage ratio which shows the number of outstanding derivative contracts at a given time. An increase in the open interest rate means that new traders are trading new positions in the derivatives market.
The chart above shows that there has been an increase in the amount of open interest leverage since the beginning of the year. This is in sharp contrast to the decline in 2022 when market volume is low. An increase in futures trading is a bullish sign for the market and is usually one of the indicators that indicate that we may be entering a bull run.
Featured images from Unsplash.com / charts from TradingView and Glassnode