Bitcoin experienced a significant 26.7 percent rally (as of press time) that made spot trading extremely beneficial for investors, but the interesting fact is that the derivatives markets also benefitted from the increase. Bitcoin Futures and Options fared well, according to on-chain data. The most intriguing element was a sharp increase in one particular indicator, which confirmed the surge.
Bitcoin derivatives are on the rise.
Futures Short Liquidations saw a significant increase for the first time in a month. On July 26, the yellow bar reached a high of $219 million, indicating the total amount of shorts liquidated. This spike proved one thing: the fundamental reason for the recent rally was, in fact, this short squeeze.
Futures Open Interest (OI) increased in tandem with the increase in short liquidations. Following the May sell-off, OI has remained relatively stable, fluctuating between $10 billion and $12 billion. This tendency has finally changed, with Futures OI rising by $1.4 billion just this week. An increase in OI raises the chances of a volatile leverage squeeze occurring. Futures volumes did not lag behind when the OI increased.
For the first time in almost a month, the Bitcoin futures market saw such high daily volumes of futures contracts. On July 26, volumes increased by $90 billion in just 24 hours, reaching $120 billion. This is evidence of rising derivatives market engagement.
The Options volume, which was up by $1.1 million on July 26, adds to the mix. The market appears to be stronger than ever at the moment, with the options volume at 1.2 million.
Is the hedging in favor of the market or against it?
This is when things start to get interesting. Technically, put ratios always outnumber call ratios, and investors seek to protect themselves from a market that is already in decline. Until something like this happened recently. With about 1,513 BTC incall contracts worth $80k as of July 27, call contracts were substantially greater than put contracts. Despite the fact that many are trading Futures at a higher price, some people are still playing in the $29k to $40,000 bracket. Call strikes of up to $90,000 provide confirmation of the bullish forecast for Bitcoin.
Those wishing to get into the derivatives market may discover that now is the best moment to do so. Simply ensure that your exits follow the same pattern as Bitcoin’s price activity.