Since bitcoin‘s latest rally began, there has been speculation about whether derivatives are fueling the rise. This is what Glassnode says.
bitcoin Funding Rates Have Remained Low Recently
In its latest weekly report, the on-chain analysis firm glass node has talked about what the derivatives side of the market has looked like while the asset’s latest rally has taken place.
First, the report analyzed the open interest of the perpetual swap markets, where “open interest” refers to the total number of bitcoin contracts currently open. The metric has been measured here in terms of btc so that USD price fluctuations do not affect the trend.
<img decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2023/10/Are-Bitcoin-derivatives-behind-the-latest-rally-Glassnode-Answers.png" alt="bitcoin Open Interest” width=”2000″ height=”1152″ loading=”lazy” data-recalc-dims=”1″/>
Looks like the value of the metric has plunged in recent days | Source: Glassnode's The Week Onchain - Week 43, 2023
From the chart, you can see that bitcoin open interest experienced two major liquidation squeezes in January and August, the first being a short squeeze and the second being a long squeeze.
Since the latest rally began, btc has seen two liquidation events: one at 25,000 btc and the other at 33,000 btc. This short combined contraction is now on the same scale as the aforementioned sell-off events.
In terms of the dollar values of the liquidation events, the latest contraction is again comparable to the others this year:
<img decoding="async" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2023/10/1698265396_874_Are-Bitcoin-derivatives-behind-the-latest-rally-Glassnode-Answers.png" alt="bitcoin Futures Settlements” width=”2000″ height=”1152″ loading=”lazy” data-recalc-dims=”1″/>
A large amount of short liquidations seem to have occurred recently | Source: Glassnode's The Week Onchain - Week 43, 2023
On the topic of liquidations, Glassnode reveals that, interestingly, the market has been dominated by prolonged liquidations throughout bitcoin‘s history. There have only been a few phases where short positions have dominated long positions for 30 days.
The recent large short sell-offs have resulted in shorts outperforming longs, as the chart below shows.
<img decoding="async" loading="lazy" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2023/10/1698265396_25_Are-Bitcoin-derivatives-behind-the-latest-rally-Glassnode-Answers.png" alt="bitcoin Net Liquidation Volume” width=”2000″ height=”1152″ data-recalc-dims=”1″/>
Short liquidations have surpassed long liquidations | Source: Glassnode's The Week Onchain - Week 43, 2023
Interestingly, it appears that during the few periods where short liquidations have dominated the market (highlighted in yellow), bitcoin has seen an extreme point in its price.
While settlement data would suggest that derivatives have indeed played a role in driving the market during this latest rally, funding rates could tell a different story.
<img decoding="async" loading="lazy" class="alignnone aligncenter" src="https://technicalterrence.com/wp-content/uploads/2023/10/1698265396_490_Are-Bitcoin-derivatives-behind-the-latest-rally-Glassnode-Answers.png" alt="bitcoin funding rates” width=”2000″ height=”1152″ data-recalc-dims=”1″/>
The funding rates have been positive recently | Source: Glassnode's The Week Onchain - Week 43, 2023
“It is notable that funding rates and cash-and-carry in the futures markets have remained relatively calm overall,” explains Glassnode. “In 2023, overall, futures markets returned annualized rates above 6%, which are higher than U.S. Treasury rates.”
However, in August, the sell-off cooled these funding rates and they have remained relatively low since. Even with the latest chaos in the market, the metric has yet to see any significant rebound. The analytics firm notes that this could imply that bitcoin‘s rally is only partially driven by leveraged speculation.
btc Price
At the time of writing, bitcoin is trading at around $34,300, up 23% from last week.
<img decoding="async" loading="lazy" class="alignnone size-medium aligncenter" src="https://technicalterrence.com/wp-content/uploads/2023/10/Are-Bitcoin-derivatives-behind-the-latest-rally-Glassnode-Answers" alt="bitcoin price chart” width=”1534″ height=”869″/>
btc has observed some sharp bullish momentum in the past few days | Source: BTCUSD on TradingView
Featured image by Kanchanara on Unsplash.com, TradingView.com charts, Glassnode.com
