Speculation on Whether Derivatives Fuel the Bitcoin Rally
Since the latest Bitcoin rally began, there has been ongoing speculation about whether derivatives are driving the surge. According to Glassnode, here’s what you need to know.
Derivatives Market Analysis
In its most recent weekly report, Glassnode, an on-chain analytics firm, discussed the state of the derivatives market during Bitcoin’s latest rally.
The report first examined the open interest of perpetual swap markets. Open interest refers to the total number of open Bitcoin contracts. By measuring this metric in BTC instead of USD, fluctuations in the USD price do not impact the trend.
Glassnode also highlighted previous instances of liquidation squeezes that occurred in January and August. The former was a short squeeze, while the latter was a long squeeze.
During the current rally, two liquidation events have taken place, resulting in a combined short squeeze equal in scale to the earlier mass liquidations.
Comparison of Liquidation Events
In terms of USD values, the most recent squeeze is comparable to previous events this year. However, funding rates may tell a different story.
Funding Rates and Market Stability
Glassnode notes that despite market chaos, funding rates and cash-and-carry basis in futures markets have remained relatively calm. Throughout 2021, futures markets have consistently yielded annualized rates above 6%, surpassing US treasury rates.
In August, a selloff cooled off these funding rates, and they have since remained low. Even with recent market turbulence, there hasn’t been a significant increase in this metric. This suggests that leveraged speculation may only partially drive the Bitcoin rally.
BTC Price
As of now, Bitcoin is trading at approximately $34,300, marking a 23% increase in the past week.
Hot Take: The Role of Derivatives in Bitcoin’s Rally
The recent surge in Bitcoin’s price has sparked debates about the role derivatives play in driving this rally. Glassnode’s analysis suggests that while there have been significant liquidation events during this rally, funding rates and cash-and-carry basis in futures markets have remained relatively stable. This indicates that leveraged speculation may not be the sole driver of the Bitcoin rally. With Bitcoin’s price continuing to climb, it will be interesting to see how the derivatives market evolves and if it continues to impact the asset’s performance.
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