The price of Bitcoin may have exceeded $20,000, but the 40% reduction in volume shows that bears are watching BTC closely.
Today, the price of Bitcoin (BTC) has reached an all-time high of $20,000 and in the process a record $7.9 billion in open futures contracts has been set.
Although the price has risen 74% in the last two months, the total accumulated settlement of short sellers was $4.3 billion, less than the $4.8 billion of long positions.
As shown in the graph above, aggregate open futures contracts have increased 90% in the last two months. Thus, it signals that investors are increasing their positions, which in turn allows even larger players to participate.
It is also important to note that the Chicago Mercantile Exchange (CME) already holds more than $1.3 billion of these contracts, undeniable evidence of the growing institutional participation in BTC markets.
By looking at daily settlements, investors can better assess how traders have used leverage. Unexpected price swings tend to cause higher settlements than current trends, such as the recent flight of Bitcoin to $20,800.
Note that the largest candle represents buy positions being forcibly closed on November 26th, with the price of the BTC falling 14.4% in 12 hours. Today’s breach of the $20,000 resistance caused short positions to settle for $365 million, but this is still no match for the previous month’s bearish move of $902 million.
Volume failed to keep up with the new BTC price hike
The recent downward trend in volume is another reason for bears to celebrate. The total unadjusted Bitcoin trading volume has decreased 40% in the last three weeks.
The average daily trading volume of Bitcoin Bank spot on exchanges reached $45 billion at the end of November and has since dropped to $25 billion. Although there is a possibility that the exchanges have inflated their volumes, there may also be some bearish maneuvers in play.
However, a similar drop of 40% occurred in the BTC/USD and BTC/USDT Binance markets of Coinbase. Therefore, bears can expect such volume weakness to indicate a lack of confidence in $20,000 becoming a support level.
Perpetual Futures Reflect Excessive Leverage
Perpetual contracts, also known as reverse swaps, have a built-in fee usually charged every eight hours. Even if the open positions of buyers and sellers are matched at all times, their leverage can vary.
When buyers (long) are the ones requiring the most leverage, the financing rate becomes positive. Therefore, it is the buyers who pay the fees.
Sustained financing rates above 4% per week translate into extreme optimism. This level is acceptable during market highs, but problematic if the BTC price is on the side. A high financing cost can force buyers to reduce their positions, thus increasing selling pressure.
In situations like these, the high leverage of buyers increases due to the increased risk of large settlements occurring with unexpected price declines.
Thus, bears may be holding their cards close to their chest, waiting for the best moment to test the market.
It is possible that this happens closer to the expiration of futures and options on December 25 or during weekends, when the order books are usually narrower.