From Bitcoin spot to derivatives, what drives BTC’s price

– Only a few traders had open contracts based on funding rate and open rate.

– There is only a small deviation between the futures market and the BTC directional bias.

There is no doubt that Bitcoin [BTC] stopover around $30,000 has been driven by increased market demand. Needless to say, some of them big drivers of price action include supply and demand dynamics, investor sentiment and macroeconomic conditions.

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But at the same time, the interaction between the spot market and the activities in the derivatives market is also the subject of intense speculation for BTC.

In quick summary, traders engage in spot for immediate delivery of a transaction settlement in the underlying asset. In contrast, the derivatives market consists of instruments, including options, futures and swaps that derive value from said asset without actual ownership.

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But in the past, the futures market has had more influence on Bitcoin price action than spot demand. However, more recent data, according to CentralCrypto, noted that the opposite was the case.

According to the analyst’s opinion posted on CryptoQuant, the futures market’s influence over BTC had drowned significantly. Instead, the cumulative delta signal showed that spot activity was driving the momentum.

Source; CryptoQuant

From the image above, it was clear that the volume into the spot market had exceeded the volume into the derivatives. Therefore, this suggests that fast asset transactions occurred far more than open contracts.

CentralCrypto also pointed out Trend with open interest (OI).. OI defines the number open long and short positions on stock exchanges. Generally, an increasing OI implies more volatility, liquidity and attention to the derivatives market.

But when the metric drops, it means investors are closing their options or futures positions. The analyst had observed the decline in the calculation and noted that:

“During this period of lateralization, the number of derivative contracts relative to market size continued to decline, indicating a reduction in demand for the use of derivatives.”

Spot: Neutralizes the control of the contango

Thus, this suggested that it was only a minimal sign of a short squeeze as traders have not driven buy calls for more upside. This was again confirmed by Estimated Leverage Ratio (ELR). The metric refers to the OI share of reserves on stock exchanges.

At the time of writing, the ELR had dropped to a very low point. According to Glassnode, the ratio was 0.22. Such a low ELR often coincides with volatility and strength in the spot market, as traders appear to take leverage risk from the markets.

Source: Glassnode

As previously indicated, there are few open contracts. And from the funding rate, the bias appears to have remained neutral based on Coinglass.

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When the financing rate increases, it means that the price of the perpetual contract is higher than the market price. Here, longs pay shorts. But when the rate is negative, the opposite happens and short positions pay for longs.

Source: Coinglass

Therefore, this means that the price action has mainly been controlled by the impulse from spot trading. Therefore, liquidity entering the derivatives market may have lost its power to push a healthy curve. Barring changes, sentiment may continue to determine BTC direction.