Red-hot spot markets are primarily fueling bitcoinâ€™s recent rally as the leading cryptocurrency trades at three-year highs around $15,500, suggesting the bull market may have room to continue.
Unlike previously rallies, derivatives markets are playing a markedly less prominent role, demonstrated by mild liquidation volumes.
The presence of derivatives in bitcoinâ€™s ongoing rally is â€œmuted in comparison to previous run-ups,â€ said Matt Kaye, managing partner at Santa Monica-based Blockhead Capital. Talking to CoinDesk, Kaye said, â€œThe market is clearly spot-dominated, and it appears that most of the bidding is coming out of the U.S.,â€ continuing a trend CoinDesk reported in May.
On Thursday, BitMEX, a cryptocurrency derivatives exchange known for attracting unorthodox, high-leverage traders, reported $54 million in liquidated bitcoin futures contracts during the most recent rally, well below the still mild liquidation volume of $75 million reported on Oct. 21 when bitcoin reached then-new yearly highs, breaking above $13,000, according to Skew.
Large liquidations might not happen until the leading cryptocurrency breaks above its all-time highs just below $20,000, said Kyle Davies, co-founder of Three Arrows Capital, in a direct message with CoinDesk. â€œFrankly, thereâ€™s not much leverage in the market now anyways,â€ he said.
Significant price movements typically trigger large-scale liquidations in characteristically overleveraged cryptocurrency futures markets. But the mild liquidations throughout bitcoinâ€™s recent rally signals that the typically prominent derivatives markets has taken a back seat and the spot market has the wheel.Â
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Corroborating the quietness of derivatives markets amid bitcoinâ€™s soaring price action is that less than $500 million in bitcoin futures positions had been liquidated in the past 24 hours, as of 14:35 UTC Friday, across seven leading trading platforms as bitcoin neared $16,000. The largest reported liquidation of $5.97 million happened on BitMEX, according to derivatives data aggregator Bybt.
Regulatory troubles weathered by leading leveraged trading exchanges including BitMEX, OKEx and Huobi explain the subdued influence that derivatives markets play in bitcoinâ€™s current rally, according to Davies.Â
That liquidation volumes are low relative to bitcoinâ€™s price movements could be an encouraging sign for bitcoin bulls, according to Aditya Das, cryptocurrency market analyst at Brave New Coin.
â€œThe quiet funding rate and relatively low number of liquidations could be read as a positive sign that this rally may have legs and is not close to overheating because of speculators,â€ he told CoinDesk in a direct message.
The market could also be signaling that futures traders simply â€œmissed out on the big move,â€ Das added.