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Bitcoin (BTC) Perpetual Contracts and Tether USD (USDT): An Analysis

2024-11-14

Bitcoin (BTC) perpetual contracts denominated in Tether USD (USDT) have been drawing significant attention. Recent data from CryptoQuant shows signs of overleveraging, with the “open interest to USDT reserve ratio” reaching an all-time high of 0.593 on Nov. 10. This indicates a potential imbalance in the market. Ki Young Ju, the firm’s CEO, pointed out that the current levels are 2.7 times higher than in February when the ratio first crossed the dangerous zone in 2024. This raises concerns about the stability of the market.

Potential Painful Pullback

There is uncertainty about how high Bitcoin will go, but Ki Young Ju remains bullish on BTC in the long term. He emphasized that there will be a painful pullback once the leverage unwinds. This prediction adds to the volatility and uncertainty surrounding Bitcoin’s price. In the few hours following CryptoQuant’s CEO post, Bitcoin registered a new all-time high of $93,523.65. However, this was quickly followed by a 5% correction, and the price is currently trading around $88,701.71. Despite the correction, the liquidations volume is still 5% down in the past 24 hours, totaling nearly $872 million. This shows that the market is still adjusting to the recent changes.

Healthy On-Chain Metrics

Despite the risk of unwinding leverage pressuring BTC’s price down, other on-chain metrics remain healthy. CryptoQuant analyst Martuun pointed out that retail investor demand reached a 52-month high in the past 30 days. This indicates a strong interest from individual investors in Bitcoin. He added that it is impossible to ignore that retail trading is fully back, with Dogecoin surging, high funding rates, and a spike in Google searches for Bitcoin. This shows that Bitcoin is still a popular asset among retail investors.Furthermore, according to a Glassnode report, the recent Bitcoin price spikes are predominantly driven by spot buyers on Coinbase’s market. The daily Cumulative Volume Delta (CVD) for Bitcoin’s spot market on Coinbase reached $143 million, nearing the $152 million peak seen in March. This movement in the US market reflects a steady rise in buyer-side pressure, reinforcing the robust demand from investors who view Bitcoin as an increasingly valuable asset. Since July, each Bitcoin rally has seen strong buy-side interest on Coinbase, signaling solid spot market demand. This demand trend also extends to spot ETFs, with US assets under management in Bitcoin spot ETFs surging by $8.8 billion over the past 30 days, surpassing the $6.9 billion increase in CME futures open interest. The preference for spot-driven ETFs reflects a broader shift in investor sentiment toward direct exposure over futures-based speculation.

Perpetual Futures and Spot Buying

While perpetual futures also saw a recent premium peak of $1.59 million per hour on Nov. 12, it remains below March levels. This indicates that spot buying, not leverage, is the primary driver of Bitcoin’s current rally. The data shows that the market is shifting towards a more stable and sustainable growth model, with spot buying playing a crucial role. This trend is likely to continue as investors become more cautious about the risks associated with leverage.In conclusion, Bitcoin’s market is experiencing significant changes and challenges. The overleveraging situation and the potential for a painful pullback are concerns that need to be monitored closely. However, the healthy on-chain metrics and the strong demand from spot buyers provide some optimism for the future of Bitcoin. As the market continues to evolve, it will be important to stay informed and adapt to the changing conditions.

Since Donald Trump's US presidential election victory, Bitcoin has witnessed an unprecedented rally. However, recent data indicates that this record-breaking surge is beginning to show signs of moderation in the derivatives market. K33 Research has pointed out that the premium paid for CME-listed Bitcoin futures contracts over the spot market price, a commonly used instrument by US-based institutional investors, has declined. Crypto data tracker Amberdata shows that the open interest for put options with a strike price of $80,000 has surged in the past 24 hours. Vetle Lunde, the head of research at K33 Research, stated that markets seem to be cooling down as the CME basis has trended lower since yesterday's close, hovering around 10% throughout the day, down from the 13-16% basis regime since the election. This might suggest a moderating of risk profiles.Bitcoin is currently trading at around $89,500 in New York, down from its all-time high of $93,462 reached on Wednesday. Since Trump, who is now a supporter of Bitcoin, defeated Vice President Kamala Harris last week, the original cryptocurrency has jumped more than 30%. The liquidation of leveraged bullish bets across the crypto market has contributed to the retreat from the record high. Coinglass data shows that liquidations of long positions were twice as high as for bearish bets in the past 24 hours, at $447 million and $207 million respectively. Earlier in the rally, the liquidations were more evenly split.Possible profit taking after the manic run could be another factor driving the current downturn. As $90,000 is the price level with one of the largest open interest positions in call options, on-chain futures and options trading platform Crypto Valley Exchange CEO James Davies believes that this could lead to profit taking. He said, "Crazy speculative days in the market, big profit taking in the last few hours. $90k is a massive level in the call options open interest."Traders attribute the rally largely to fresh demand from the spot market, as seen in heavy flows into exchange-traded funds backed by the digital asset and relatively moderate leverage. The funding rate for Bitcoin perpetual futures traded on offshore exchanges increased after declining earlier this week. Options traders are showing more interest in calls with strike prices of $110,000 and $120,000, according to data from the largest options exchange Deribit.Davies further stated, "It’s all pure speculative trading right now, expect lots volatility and a lack of clear signals for a while whilst we wait for policy announcements in the US. As we get closer to the November options expiry, it will be interesting to see if $90k becomes a resistance level, or if we are well past it."

Bitcoin's Rally Faces Slowing in Derivatives Market

Bitcoin's Post-Election Surge and Its Impact

After Donald Trump's victory in the US presidential election, Bitcoin experienced a remarkable rally. It jumped more than 30% as Trump became a supporter. This surge was driven by various factors such as fresh demand from the spot market and relatively moderate leverage. However, as time passed, signs of slowing began to emerge.

The CME-listed Bitcoin futures contracts premium over the spot market price started to decline. This indicates a change in the market sentiment and a potential cooling off of the rally. Open interest for put options with a strike price of $80,000 surged, suggesting that investors are becoming more cautious and hedging their positions.

The Role of Liquidations in the Retreat

The liquidation of leveraged bullish bets across the crypto market played a significant role in the retreat from the record high. In the past 24 hours, liquidations of long positions were twice as high as for bearish bets, reaching $447 million and $207 million respectively. This shows that the market is becoming more balanced and that excessive speculation is being corrected.

Earlier in the rally, the liquidations were more evenly split, but now there is a clear shift towards the liquidation of long positions. This indicates that investors are taking profits and reducing their exposure to Bitcoin.

Profit Taking and Future Outlook

Possible profit taking after the manic run is another impetus for the current downturn. As $90,000 is the price level with one of the largest open interest positions in call options, traders are closely watching this level. If Bitcoin fails to break above $90,000, it could face resistance and lead to further selling.

Options traders are aiming higher with more interest in the calls with strike prices of $110,000 and $120,000. This shows that they are still optimistic about the long-term prospects of Bitcoin but are cautious in the short term. As we approach the November options expiry, it will be interesting to see how the market behaves and if $90k becomes a resistance level.