Bitcoin [BTC]: Derivatives demand is rising, but what are the implications

• Bitcoin demand in the derivatives market benefits from inflows fueled by bank collapses.
• Selling pressure may put a cap on the recent rally and trigger some prolonged liquidations, but investors are exiting.

Market events so far this month can teach investors a lot about Bitcoins [BTC] demand characteristics, especially those related to the derivatives market. The same observations can be useful when making informed marketing decisions.

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To summarize, Bitcoin’s jump from March 10 was driven by an increase in accumulation due to the loss of confidence in the banking sector. The higher confidence was particularly evident in the derivatives market. Both Binance’s open interest and funding interest calculations bounced back sharply on March 12th to a new monthly high on March 19th.

Source: CryptoQuant

Both calculations confirm a robust inflow of demand from the derivatives market. But what about the demand for influence? Bitcoin’s estimated leverage ratio fluctuated around the same time as the other derivatives market. It grew slightly, which may indicate that market confidence is still not as high. However, it could also mean that those who were willing to use gearing were still relatively few.

Source: CryptoQuant

Perhaps the best example of the impact of the level of leverage in the market is its impact on price changes. For example, long liquidations rose to 304.54% on March 22 due to the increase in selling pressure. Also, the shorts have fallen by a notable margin in recent days.

Source: CryptoQuant

The Bitcoin bear narrative resurfaces

BTC long liquidations have also fallen sharply in the last 24 hours. This could be due to investors exiting their positions, especially now that Bitcoin is interacting within a rising resistance line. We have seen the return of selling pressure above the $28,000 price level.

Source: TradingView

BTC has also flirted with overbought conditions according to RSI, as has MFI. This increases the chances of selling pressure pushing the price down, thus explaining why traders exit their positions.

The risk of more selling pressure is further exacerbated by outflows from whale addresses. Addresses with over 1,000 BTC peaked on March 20 and have significantly reduced their balances since then. This is a sign that whales have taken short-term gains.

Source: Glassnode

The above observations highlight a higher probability that the bears will succeed in pushing down Bitcoin’s price in the coming days. However, this will depend on whether there will be any new events that could accelerate sales or trigger a potential pivot. If the latter happens, Bitcoin’s next major target will be the $30,000 price range.