The Derivatives Magazine #4
Although the market capitalization was almost unchanged during the week, it varied quite considerably during trades. Starting at 1.21T USD on Monday, it reached a high of 1.3T USD on Tuesday, before falling back to the levels of the beginning of the week. In the absence of major news, traders and investors continued to reduce risk levels. Earlier this week (for the second time in a row), a strong and rapid upward price movement in the major cryptocurrencies BTC and ETH could be observed at the start of the Asian session. This time it led to significant liquidations, especially in Ethereum.
According to Coinglass analytical service, the main liquidations took place in short ETH positions opened on bitfinex, amounting to more than 670m USD. At the same time, the total volume of liquidations in bitcoin, for example, did not exceed 50m for all exchanges combined (later there was information about actual liquidations amounting to 132m USD, which, however, is still several times higher than liquidations in other crypto tokens or BTC). The increased volume of open positions and liquidations is due to the ongoing process of merging the two parts of Ethereum operating under different block validation models – proof-of-work (the original) and proof-of-stake (the future working version). Despite the fact that the procedure is taking place in a test subnet and will last until June 8 or 9, the attention of traders and Ethereum holders is maximally focused on the news related to the planned (or not) course of events. As a result, a slight deviation in the programmed order of transactions (which was quickly corrected) led to an increased expectation of project failure, and consequently an increased number of short positions.
The perpetual swap markets have seen a significant increase in activity. A sharp surge in the BTC price allowed it to surpass the psychologically important 30 000 level again. This led to the opening of a large number of new long margin positions, which resulted in the funding rate rising above 10% on Binance, while on FTX it was as high as 17.5% at one point. Conversely, BITMEX and decentralized exchange DYDX saw negative rates of -8% and -9% respectively.
On the futures market, the semi-annual contract with an execution date of June 22 continues to be the most traded instrument, with open interest volume of more than USD 1.1B on the major exchanges. The June contract is followed by the September contract with an execution date of September 30 and an open interest volume of USD 960M. The funding rate also differs between the different exchanges. For example, for the June contract on OKEX it is 0.87%, while on the FTX it is more than 3.8%.
Such a significant rate differential between futures and perpetual swaps is atypical for the market and indicates fragmented trading flows. Such a situation could be caused either by an upcoming significant amount of important economic news (increased uncertainty and expected volatility) or by the likely imminent end of a downtrend.
The “approaching local bottom” option supported by statistics on the profit (loss) realization by long-term and short-term Bitcoin owners.
According to CryptoQuant analytical service, long-term holders (Bitcoin holdings exceeding 1 year) are now on the frontier between profits and losses. Historically, a capitulation phase (Figure 1) has occurred if the rate continues to fall, preceding the next price growth cycle. In parallel with these processes, the total number of on-chain addresses in the profit zone tends to decrease below 50% (Fig. 2), which is also a historical sign of a local bottom.
The coming week will be very significant in terms of US economic statistics: CPI (consumer price index) information will be released at the end of the week and there will also be a European Central Bank meeting. In addition, the outcome of the Ethereum test network merger expected to be known, a process of which traders and investors have been paying a lot of attention to. Under such circumstances, it is logical to expect a surge in volatility and significant price movement, especially at the end of the week.
This overview was prepared by the analytics department of the Biqutex crypto derivatives exchange
