Bitcoin Surges as Derivatives Data Points to Bullish Momentum

2:43 pm, Tue, 24 October 23

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  • Bitcoin’s impressive rally surges from $27.1k to $35.1k, marking a significant price increase.
  • Long-term moving averages at $28k provided resistance until this week when crucial averages, including the 111-day, 200-day, and 200-week, were broken.
  • Analysis of derivatives data reveals a substantial reduction in open interest and significant short liquidation volumes, suggesting a potential shift in market dynamics.

Bitcoin Investors Rejoice as BTC Soars from $27.1k to $35.1k

Bitcoin investors have been on a thrilling ride this week, witnessing a substantial appreciation in their holdings as BTC rallied from a low of $27.1k to a high of $35.1k. This impressive surge marked a convincing break of several critical technical and on-chain pricing levels, signifying significant strength in the market.

Breaking Through Long-Term Moving Averages

For months, a cluster of long-term simple moving averages had acted as formidable resistance around the $28k mark. However, after a grinding upward trend in the market, the bulls finally found the strength to break through key moving averages, including the 111-day, 200-day, and 200-week averages, in a remarkable display of resilience.

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Analyzing Derivatives: Was It a Leverage-Driven Rally?

When major market moves occur, analysts often turn to derivatives data to discern whether the rally resulted from a leverage wash-out. Let’s delve into the details:

Bitcoin Open Interest Declines

Open interest in perpetual swap markets, viewed in BTC terms to filter out price movement effects, saw a decline of approximately 25k BTC on 17-Oct, marking an 8.3% reduction. This was followed by a second substantial leverage washout of 35k BTC on 23-Oct, coinciding with BTC’s surge to new yearly highs at $35k. Notably, this leverage squeeze mirrors the intensity of the short-squeeze in January and the long-squeeze in August.

Significant Short Liquidations

The rally on 17-Oct triggered the liquidation of about $56 million in short positions, swiftly followed by an additional $125 million in liquidations on 23-Oct. These figures represent a considerable volume of short liquidations in the context of 2023 and are reminiscent of the $155 million in short liquidations in January and the $220 million in closed long positions in August.

Short-Dominance in Futures Markets

By analyzing the 30-day sum of liquidated longs and shorts, we can observe a distinct shift. Historically, the market has seen greater long liquidation volumes compared to shorts. However, over the last 30 days, we have witnessed more short volumes being force-closed. This short-dominance pattern typically coincides with local market extremes.

Bitcoin Steady Funding Rates

Despite the recent short squeezes, funding rates and cash-and-carry basis in futures markets have remained relatively stable. Throughout 2023, futures markets have offered annualized rates exceeding 6%, surpassing US treasury rates. While funding rates did spike during the short squeezes this week, they have stayed relatively low, suggesting that the rally may only be partially driven by leveraged speculation.

In conclusion, Bitcoin’s impressive rally, characterized by its resilience against key moving averages and the dynamics of derivatives data, indicates a promising upward trend in the cryptocurrency market. Investors continue to closely monitor the evolving landscape as Bitcoin’s price trajectory remains a focal point of interest.

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