At least half of a Bitcoin (btc) A 160% increase this year has been achieved in just the past eight weeks.
The trend looks even more impressive due to its gradual structure of a series of price rises and horizontal consolidations. This is in stark contrast to previous rallies, including the rally in late 2020 and early 2021, when declines of 20% or more were common.
These declines remained elusive this time, perhaps because spot market buyers were in the driver’s seat.
“The bull market has clearly been a bull driven market, with all major derivatives data relatively flat, futures premiums around 10%, and options IVs indicating implied volatility not showing significant gains,” options data tracking site Greeks.Live said on Monday. Website
The spot market is where an asset is traded for immediate delivery. Derivatives include futures and options, which derive their value from the underlying asset, and these instruments are settled in the future.
According to CCData, spot and derivatives trading volume on central exchanges rose to an eight-month high of $3.61 trillion in November, with the share of derivatives falling for the third month in a row to 73%. Data tracked by analytics firm CryptoQuant shows that Bitcoin’s ratio of spot to derivatives trading volume jumped to nearly 0.10 from 0.05 last month, indicating increased activity in the spot market.
While derivatives still represent the majority of the market volume, the degree of leverage in the system remains low, which supports the step-by-step price rise.
Derivatives are typically leveraged instruments, allowing traders to take bullish (long) or bearish (short) positions of a value greater than the amount they have deposited as margin on the exchange. Leverage is a double-edged sword, as it magnifies profits and losses. It also exposes traders to liquidation, or forced liquidation, due to lack of margin. Furthermore, mass liquidations often lead to exaggerated upward or downward movements, so the more leverage is used, the more likely liquidations will occur that inject volatility into the market.
The estimated leverage ratio, which is calculated by dividing the value of locked dollars in active open perpetual futures contracts by the total value of coins held by derivatives exchanges, remains near the April low of 0.20, after peaking above 0.40 on the year. The past, according to data source CryptoQuant.
Most leading exchanges, including Binance, now offer leverage of 20x or less in derivatives trading, allowing speculators to create long positions controlling 20x the value of their collateral. This is significantly less than the 100x available during previous bull runs. Such a high use of leverage means less ability to survive when things go wrong and be exposed to downside volatility caused by liquidations, as observed during the 2020-2021 bull run.
Furthermore, activity is now more concentrated in standard futures contracts on the regulated Chicago Mercantile Exchange (CME), where institutions and sophisticated traders rarely use extreme leverage. Derivatives trading on the Chicago Mercantile Exchange rose 18.4% to $67.9 billion in November, the highest level in two years, according to CCData. The Chicago Mercantile Exchange also overtook Binance as the largest derivatives exchange, with open interest in Bitcoin rising 21% to $4.11 billion.
Finally, the use of coins as margin for trading reached its peak in 2021-2022. Now, cash or margined contracts in stablecoins account for most of the open interest in Bitcoin futures. Cash-margin contracts provide a linear return, while cash-margin contracts, where the collateral is as volatile as the trading position, create greater liquidation risk.