CentralCrypto
Spot trading still rules BTC market
The futures market had less leverage over the bitcoin price in recent months than the spot market (image1). Leverage reduction, fewer open contracts and cumulative delta signal that spot activity is driving this momentum (image 2). One of the main drivers of influence on bitcoin pricing is the derivatives market, which at the moment is mainly divided between perpetual futures contracts and options contracts. These instruments allow "synthetic" bitcoin trading, that is, they trade contracts with exposure to BTC, but not necessarily to the "physical" asset. Open Interest, which counts the number of open perpetual contracts, is a way to see the level of use and demand for these instruments. With that we have a vision if there is a lot of demand for bets on these contracts and when there is not. Image 3 shows exactly these data: in this period of lateralization the number of derivative contracts compared of market size continued to decline, indicating a reduction in the demand for the use of derivatives. This drop signals that fewer traders are allocating capital via futures contracts, making this market have less influence on BTC pricing. Another factor that supports the view of low derivative strength at this point in time is futures contract funding rates, which are relatively neutral compared to prior periods (image 4). As they are relatively neutral, this signals shows there is little discrepancy between the price of futures contracts and the spot price, or in other words, there is fewer activity from traders using these derivatives. At this moment we see more buying force in the last 30 days than selling force in futures contracts. As we already indicated there are few open contracts and those contracts has no major directional bias, what remains to generate strength in the price of BTC is precisely the spot market. What this means? Sentiment will rule the market until intelligent money takes back the control.