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Bitcoin continues to see a bullish uptrend across the board, with the derivatives market volume witnessing an upturn in fortunes. BTC prices in futures contracts have begun to exceed spot market prices indicating that traders are gaining confidence in the derivatives market. 

Bitcoin Derivatives Volume Shows Steep Decline In 2022

Bitcoin witnessed an extended bearish trend in 2022, resulting in a 60% drop in its price and a steep decline in bitcoin futures and options volumes. The collapse of FTX last November further diminished the market sentiments, and there was a significant withdrawal from the derivatives market, accompanied by long liquidations and a strong bearish bias. 

To put this in perspective, according to figures from TheBlock, Bitcoin futures volumes in December 2021 was about $1.3 trillion, based on data from major exchanges. This reduced by more than 50% to $620 million in November 2022, showing a steep decline in trading volumes on major exchanges.

However, this changed in January 2023, with the reversal in the fortunes of Bitcoin a major factor. Bitcoin price has steadily increased recently, hitting $24,000 earlier in the week, and the derivatives market is showing a decidedly bullish profile. 

Related Reading: Breaking: Bitcoin Breaks Above $24,000 For The First Time In 2023

On-Chain Data Shows Positive Gains In 2023

According to market analyst ProfChaine on his Twitter account, the derivative market is reversing with strong short selling and a pronounced bullish bias. He further supports his claims with a series of charts showing the evolution of bitcoin futures 3-month moving annualized basis (indicated in blue below). 

Bitcoin annualized perpetual funding rates vs 3m Rolling Basis/Glassnode

This metric shows the percentage increase or decrease in the average price of futures contracts in relation to the spot price. If traders target futures contracts with prices higher than the spot price, the rate will be positive, and if the expectation is that the price will fall, the rate becomes negative. 

As seen in the chart, the FTX collapse at the beginning of November took the metric to negative as traders pulled out of futures trading. However, there was a significant uptrend in January due to the rise in the value of Bitcoin. 

Related Reading: Bitcoin Long-Term Holders Now Hold 78% Of Supply, Highest Level Ever

Another indicator is the Bitcoin futures open interest leverage ratio which shows the amount of unsettled derivatives contracts within a given time. An increase in the open interest rate means new traders are trading new positions in the derivatives market. 

Bitcoin Futures Open Interest Leverage Ratio
Bitcoin Futures Open Interest Leverage Ratio/Glassnode

The chart above shows that there’s been an uptick in the number of open interest leverage since the beginning of the year. This sharply contrasts with the decrease in 2022 when the market volumes were low.  The increase in futures trading represents a bullish sign for the market and is typically one indicator that suggests that we could be in for an extended bull run. 

Bitcoin Price is trading around $23,000| BTCUSD on TradingView
Bitcoin Price is trading around $23,000| BTCUSD on TradingView              

Featured image from / chart from TradingView and Glassnode

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