Bitcoin's remarkable 14.5% surge in the past week, reaching a 20-month high of $41,130 by December 4, has been the talk of the trading world. This upswing, particularly intriguing in the context of a $100 million liquidation of bearish Bitcoin futures within a mere 24 hours, has sparked widespread speculation among traders and analysts.
However, a deeper look into BTC derivatives data reveals a more nuanced picture, shifting the focus back to spot market activity. The Bitcoin futures market, notably the Chicago Mercantile Exchange (CME) that trades USD-settled contracts, plays a significant role in influencing spot prices despite not involving physical Bitcoin transactions.
The massive scale of these futures, boasting an aggregate open interest of $20 billion, reflects the intense interest from professional investors. Yet, in the same period as Bitcoin's surge, only $200 million worth of BTC futures shorts were liquidated, a mere 1% of the total outstanding contracts.
This amount seems minor compared to the $190 billion trading volume witnessed in the same timeframe.
Futures vs. Spot Market: Understanding the Rally's Underpinnings
The question arises: could the recent Bitcoin rally be attributed to targeting a few large players, or 'whales,' in the futures market? Even considering the CME, known for its significant trading volume, a daily volume of $2.67 billion should have easily absorbed a $100 million liquidation within 24 hours.
This disparity suggests that the rally might not be solely due to futures market activities. Moreover, analyzing liquidations at different price levels through tape reading techniques does not fully account for whether large traders and market makers are adequately hedged or can provide additional margin if needed.
Despite Bitcoin's significant rise, the futures and options markets remain relatively calm. Three key indicators suggest that there's no substantial evidence to expect a wave of short contract liquidations if Bitcoin were to cross the $43,500 mark.
This observation points to a possibility that the rally is being driven more by spot market actions than by futures market dynamics.