In the past seven days, Bitcoin (BTC) experienced a whopping 14.5% surge, hitting a 20-month high at $41,130 by Dec. 4. Traders and analysts have been abuzz with speculation, especially in the wake of the $100 million liquidation of short (bearish) Bitcoin futures within just 24 hours. However, when we dive into BTC derivatives data, a different story unfolds—one that places the spotlight on spot market action.
BTC liquidation map
Enough shorts to run it up all the way to $45-46k pic.twitter.com/7O2zYD4j8Q
— Nik Algo (@nik_algo) December 4, 2023
The impact of the recent liquidations in Bitcoin futures markets
While the Chicago Mercantile Exchange (CME) trades USD-settled contracts for Bitcoin futures, where no physical Bitcoin changes hands, these futures markets undoubtedly play a crucial role in shaping spot prices. The sheer scale of Bitcoin futures, with an aggregate open interest of $20 billion, underscores the keen interest of professional investors.
In the same seven-day period, a mere $200 million worth of BTC futures shorts were liquidated, representing only 1% of the total outstanding contracts. This figure pales in comparison to the substantial $190 billion in trading volume during the same timeframe.
Even when focusing solely on the CME, which is known for potential trading volume inflation, its daily volume of $2.67 billion should have readily absorbed a $100 million 24-hour liquidation. This has led investors to ponder whether the recent Bitcoin rally might be attributed to the targeting of a few whales within the futures markets.
$BTC Next Possible Plan
A Quick Wick to 42k-42.5k To Hunt BSL Of Shorts then A Quick Flushout of the Long’s & We Might see $BTC Pullback down to 39k-38.5k
Retracement to 39k-38.5k Will be good Buying Opportunity For the Last Leg upto 45k-47k Before ETF Approval pic.twitter.com/yc7k0hOBpZ
— VeLLa Crypto (@VellaCryptoX) December 4, 2023
One could attempt to gauge the extent of liquidations at different price levels using tape reading techniques. However, this approach fails to consider whether whales and market makers are adequately hedged or have the capacity to deposit additional margin.
Despite Bitcoin’s surge to a 20-month high, futures and options markets appear relatively subdued. In fact, three key pieces of evidence suggest that there is no compelling reason to anticipate a cascade of short contract liquidations should Bitcoin…