Low Activity in Derivatives Market as SEC Decision Approaches
As the U.S. Securities and Exchange Commission (SEC) gets closer to making a decision on spot Bitcoin exchange-traded funds (ETF), participants in the crypto market are becoming more cautious, resulting in low activity in the derivatives market.
According to a report from market intelligence platform CryptoQuant, the decline in derivatives market activity can be attributed to the increasing costs of opening long positions and investors taking profits.
Sell Orders Dominating Perpetual Futures Markets
Bitcoin’s price has been fluctuating between $42,400 and $45,800 at the beginning of the year, accompanied by relatively low activity in the derivative markets.
CryptoQuant’s analysts noted that open interests in perpetual futures markets remain low, indicating that investors and traders have refrained from opening long positions and have started taking profits. This is reflected in the decrease in market leverage.
The high costs of opening long positions have also deterred traders from buying in the perpetual futures markets. Prices are currently at levels seen during BTC and Ether’s all-time highs in November 2021.
The dominance of sell volume over buy volume in the perpetual futures markets suggests that investors are focused on realizing profits from recent rallies. However, high short-term unrealized profits may precede price corrections.
High Short-term Unrealized Profits
Market participants such as miners and short-term holders have been sitting on unrealized profits with margins as high as 30%. While they have been selling BTC at a profit, rallies typically occur after short-term losses have been realized.
The increasing costs of opening long positions have raised concerns about BTC potentially dropping to $32,000, which is the short-term holder realized price.
The crypto community anticipates a rally in BTC once the SEC approves the ETFs between January 8 and 10. However, CryptoQuant warns that current market conditions may cause the asset to plummet, turning the highly anticipated announcement into a sell-the-news event.
Hot Take: Uncertainty Looms as SEC Decision Nears
As the SEC’s decision on spot Bitcoin ETFs draws closer, the derivatives market is experiencing low activity. Traders are cautious due to the rising costs of opening long positions and are taking profits from recent rallies. The dominance of sell orders in perpetual futures markets suggests that investors are focused on realizing their gains.
Additionally, high short-term unrealized profits and concerns about BTC potentially dropping to $32,000 add to the uncertainty in the market. While many anticipate a rally after the SEC approves ETFs, CryptoQuant warns that current market conditions may lead to a sell-off instead. The crypto community eagerly awaits the SEC’s decision and its impact on the market.
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