Another rollercoaster week for the cryptocurrency market saw Ether (ETH), price fall below $3,000, and Bitcoin (BTC), price reach a new multi-month low of $37,700. Investor fear about potential changes in the Federal Reserve’s rate hike size caused a sharp selloff in the Equities market.
Bitcoin’s price has fallen 41.72% from $69,000 high. While some might call it a bear market for Bitcoin, deeper analysis of various on-chain data and derivatives data has shown that the primary factors affecting BTC price action are a decrease in institutional investor inflows and the pivot from them.
Perpetual futures dominate trade volumes
Since 2017, when spot trading dominated the cryptocurrency market, and derivatives markets accounted for only a fraction of the trading volume, much has happened in the market.
A recent report by Glassnode on-chain market intelligence firm, Bitcoin derivatives “now constitute the dominant venue for price discovery”, with the “future trading volume now representing multiples spot market volume.”
This has significant implications for current price action for Bitcoin, as thefutures trade volume has been falling since January 2021. This metric has fallen more than 59% since a peak of $80 billion per hour during the first half 2021 to its current volume at $30.7 billion per hour.
Bitcoin futures volume. Source: Glassnode
Perpetual futures have been the preferred instrument to trade during that time. They closely match the spot price, and the costs of taking delivery of BTC is significantly lower than traditional commodities.
Glassnode claims that the current open interest in perpetual Swaps amounts to 1.3% of Bitcoin’s market cap. This is a historic high level.
However, the total capital transfer and leverage out of calendar expiring options has led to a declining ratio of leverage, which “suggests” that Bitcoin market capital is leaving in a reasonable amount.
This capital rotation may be due to the fact that futures market yields are currently at just above 3.0%. This is 0.1% lower than the 2.9% yield on the 10-year U.S. Treasury Bond, and much below the 8.5% U.S. Consumer Price Index(CPI) inflation print.
Bitcoin annualized perpetual funding vs. 3-month basis. Glassnode
“It is probable that declining trade volumes, lower aggregate open interest, and higher yield are a symptom for capital flowing out Bitcoin derivatives and towards higher yield and possibly lower perceived risk opportunities.”
Related: A trader flags BTC prices levels to monitor as Bitcoin still faces $30K ‘ultimate top’
Large entity adoption is possible thanks to on-chain data
If you dig deeper into the on-chain volume data, you will find positive signs about Bitcoin’s future.
The percentage of transactions exceeding $10 million increased from 10% on a good day in October 2020 to 40% today.
Glassnode says this indicates significant growth in value settlement by institutional-sized investment/trading entities and custodians, as well as high net worth individuals.
Bitcoin relative volume of transfer by size Source: Glassnode
The current Bitcoin value is $32,500 to $36,100 based on aggregate transaction volumes and the Network Value to Transactions (NVT Ratio).
Bitcoin NVT price model. Source: Glassnode
Glassnode says both the NVT models for the 28-day model and the 90-day model are “starting out to bottom out” and “potentially reverse”, with the 28 day breaking above the 90, which has historically been a “constructive medium to long-term signal.”
The total cryptocurrency market is now worth $1.791 trillion, and Bitcoin’s dominance rate of 41.5%.
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Eileen Wilson –Technology and Energy
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