Bitcoin continues to see a bullish uptrend across the board, as the volume of the derivatives market sees fortunes rise. Bitcoin futures prices are starting to outpace the spot market prices indicating that traders are gaining confidence in the derivatives market.
The volume of Bitcoin derivatives shows a sharp decline in 2022
Bitcoin experienced an extended downtrend in 2022, which led to a 60% drop in its price and a sharp drop in volumes for Bitcoin futures and options. The crash of FTX last November dampened market sentiment, and there was a massive pullback from the derivatives market, accompanied by prolonged sell-offs and a strong bearish bias.
To put this into perspective, according to Numbers From TheBlock, Bitcoin futures volumes in December 2021 were approximately $1.3 trillion, based on data from major exchanges. This decreased by more than 50% to $620 million in November 2022, showing a sharp drop in trading volumes on major exchanges.
However, this changed in January 2023, as a reversal of bitcoin’s fortunes was a major factor. Bitcoin price has been rising steadily lately, reaching $24,000 earlier in the week, and the derivatives market is definitely showing a bullish picture.
Related reading: Break: Bitcoin broke above $24,000 for the first time in 2023
On-chain data shows positive gains in 2023
According to market analyst Prof. Shine on his site account on Twitter, The derivatives market is reversing with strong short selling and a clear bullish bias. He also backs up his claims with a series of charts showing the evolution of Bitcoin futures prices 3 months on a year-on-year basis (indicated in blue below).
This measure shows the percentage increase or decrease in the average price of a futures contract in relation to the spot rate. If traders target futures contracts at prices higher than the spot price, the price will be positive, and if the expectation is that the price will go down, the price will be negative.
As the chart shows, the collapse of FTX at the beginning of November turned the gauge negative as traders pulled out of futures trading. However, there was a significant upside in January due to the rise in the value of Bitcoin.
Related reading: Bitcoin long-term holders now own 78% of the supply, an all-time high
Another indicator is the Bitcoin futures open leverage ratio which shows the amount of derivative contracts that are unstable within a given time period. The increase in the open interest rate means that new traders are taking on new positions in the derivatives market.
The chart above shows that there has been a rise in the number of open leverage since the beginning of the year. This contrasts sharply with the decline in 2022 when market volumes were low. An increase in futures trading is a bullish sign for the market and is usually one of the indicators that we may be in an extended uptrend.
Featured image from Unsplash.com / chart from TradingView and Glassnode
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