Are Bitcoin Derivatives Behind The Latest Rally? Glassnode Answers

Keshav Verma

1 year ago

3 mins read

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Since the latest Bitcoin rally started, there has been speculation going on as to whether derivatives fuel the surge. Here’s what Glassnode says.

Bitcoin Funding Rates Have Remained Cool Recently

In its latest weekly report, the on-chain analytics firm Glassnode has talked about what the derivatives side of the market has looked like while the latest rally in the asset has occurred.

First, the report has looked into the open interest of the perpetual swap markets, where “open interest” refers to the total amount of Bitcoin contracts currently open. The metric has been measured in terms of BTC here so that the USD price fluctuations don’t affect the trend.

Looks like the value of the metric has plunged in recent days | Source: Glassnode's The Week Onchain - Week 43, 2023

From the chart, it’s visible that the Bitcoin open interest saw two large liquidation squeezes back in January and August, with the former one being a short squeeze and the latter one being a long squeeze.

Since the latest rally started, BTC has observed two liquidation events: one of 25,000 BTC and the other of 33,000 BTC. This combined short squeeze is now of the same scale as the aforementioned mass liquidation events.

In terms of the USD values of the liquidation events, the latest squeeze is again comparable with the other ones this year:

A large amount of short liquidations seem to have occurred recently | Source: Glassnode's The Week Onchain - Week 43, 2023

On the topic of liquidations, Glassnode reveals that, interestingly, the market has been dominated by long liquidations throughout the history of Bitcoin. There have only been a few phases where shorts have dominated the longs over 30 days.

The latest large short liquidations have resulted in the shorts just overtaking the longs, as the chart below shows.

Short liquidations have surpassed long liquidations | Source: Glassnode's The Week Onchain - Week 43, 2023

Curiously, it would appear that during the few periods that the short liquidations have dominated the market (highlighted in yellow), Bitcoin has observed a point of extreme in its price.

While the liquidation data would suggest that the derivatives have indeed played a role in driving the market through this latest rally, the funding rates could tell a different story.

The funding rates have been positive recently | Source: Glassnode's The Week Onchain - Week 43, 2023

“Of note is that funding rates and cash-and-carry basis in futures markets have remained relatively calm all things considered,” explains Glassnode. “2023 has generally seen futures markets yield annualized rates over 6%, which are greater than US treasury rates.”

Back in August, however, the selloff cooled off these funding rates, and they have since remained relatively low. Even with the latest chaos in the market, the metric still hasn’t seen any significant uptick. The analytics firm notes that this could imply the Bitcoin rally is only partially driven by leveraged speculation.

BTC Price

At the time of writing, Bitcoin is trading at around $34,300, up 23% in the past week.

BTC has observed some sharp bullish momentum in the past few days | Source: BTCUSD on TradingView

Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, Glassnode.com

Keshav Verma

Keshav is currently a senior writer at NewsBTC and has been attached to the website since June 14, 2021.

Keshav has been writing for many years, first as a hobbyist and later as a freelancer. He has experience working in a variety of niches, even fiction at one point, but the cryptocurrency industry has been the longest he has been attached to.

In terms of official educational qualifications, Keshav holds a bachelor’s degree in Physics from one of the premier institutes of India, the University of Delhi (DU). He started the degree with an aim of eventually making a career in Physics, but the onset of COVID led to a shift in plans. The virus meant that the college classes had to be delivered in the online-mode and with it came free time for him to explore other passions.

Initially only seeking to make some beer money, Keshav unexpectedly landed clients offering real projects, after which there was no looking back. Writing was something he had always enjoyed and to be able to do it for a living was like a dream come true.

Keshav completed his Physics degree in 2022 and has been focusing on his writing career since, but that doesn’t mean his passion for Physics has ended. He eventually plans to re-enter university to obtain a masters degree in the same field, but perhaps only to satiate his own interest rather than for using it as a means to find employment..

Keshav has found blockchain and its concepts fascinating ever since he started going down the rabbit-hole back in 2020. On-chain analysis in particular has been something he likes to research more about, which is why his NewsBTC pieces tend to involve it in some form.

Being of the science background, Keshav likes if concepts are clear and consistent, so he generally explains the indicators he talks about in a bit of detail so that the readers can perhaps come out having understood and learnt something new.

As for hobbies, Keshav is super into football, anime, and videogames. He enjoys football not only as a watcher, but also as a player. For games, Keshav generally tends towards enjoying singleplayer adventures, with EA FC (formerly FIFA) being the only online game he is active in. Though, perhaps due to being ultra-focused on the game, he is today a semi-pro on the EA FC scene, regularly participating in tournaments and sometimes even taking back prize money.

Because of his enthusiasm for anime and games, he also self-learned Japanese along the way to consume some of the untranslated gems out there. The skill didn’t merely remain as just a hobby, either, as he put it to productive use during his exploration for small-time gigs at the start of COVID, fulfilling a couple of Japanese-to-English translation jobs.

Keshav is also big into fitness, with agility and acceleration-related workouts making a big part of his program due to the relevance they have in football. On top of that, he also has a more traditional strength based program for the gym, which he does to maintain an overall fitness level of his body.

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