Bitcoin had a strong rally of 26.7% (at press time) which made spot trading very profitable for investors, but the interesting fact is that this rally also benefited derivatives markets. Observing on-chain metrics shows that Bitcoin futures and options have also performed well. The most interesting fact was the sudden spike in a certain metric that confirmed the rally.

Bitcoin derivatives are increasing

For the first time in a month, futures short liquidations saw such a sharp rise. The yellow bar hit a high of $ 219 million, indicating the total number of shorts liquidated on July 26th. That surge confirmed one thing – the main reason behind the recent rally was actually that short squeeze.

Short liquidations of Bitcoin futures | Source: Glassnode – AMBCrypto

In addition to the increased short liquidations, Futures Open Interest (OI) were also able to generate some profits. After the May sell-off, OI had maintained a flat move between $ 10 billion and $ 12 billion. That pattern finally saw a change when the futures OI rose $ 1.4 billion just this week. Such an increased OI often increases the likelihood that a volatile leverage squeeze will occur. With the OI, rising futures volumes did not lag behind.

Open Interest for Bitcoin Futures | Source: Glassnode

For the first time in over a month, the futures volumes showed such high daily volumes of futures contracts in the Bitcoin market. On July 26, in just 24 hours, the volume rose by $ 90 billion to $ 120 billion. This is proof of the increased participation in the futures market.

Bitcoin futures volume | Source: Skew – AMBCrypto

Add to this the option volume, which also increased by $ 1.1 million on July 26th. With an option volume of 1.2 million, the market currently seems stronger than ever.

Is the hedge for or against the market?

This is where things get interesting. Technically, put ratios always dominate call ratios and people hedge against the already suffering market. Until this happened recently. On July 27, the call contracts were relatively higher than the put contracts, with over 1,513 BTC in call contracts valued at $ 80,000. Although people are trading futures at a higher price, some continued to play within the $ 29,000 to $ 40,000 consolidation range. Call strikes of up to $ 90,000 confirm the optimistic outlook for Bitcoin.

Bitcoin Options OI by strike | Source: Glassnode

For those looking to get into the derivatives market, now may be the right time. Just make sure your exits match the pattern that Bitcoin’s price action follows.


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