Understanding Bitcoin's Current Standstill: Futures Trading Overshadowing ETFs

Bitcoin has been struggling to break free from a narrow trading range lately. This situation may not be as closely tied to the influx of spot Bitcoin ETF investments as some might think. Instead, it seems to be largely influenced by the ongoing activity in the derivatives market, even as futures trading shows signs of slowing down.

Key Takeaways

Bitcoin futures trading volumes have significantly declined since late November.
Futures trading continues to significantly overshadow spot Bitcoin ETF volumes.
A negative trend in net taker volume suggests persistent selling pressure affecting Bitcoin's price.
Demand dynamics appear to be a critical factor in Bitcoin's recent performance stagnation.
Long-term holders (LTHs) continue to sell Bitcoin, but the pace has slowed.

Bitcoin news

The Impact of Futures Trading on Bitcoin Prices

According to analyst Darkfost from CryptoQuant, Bitcoin futures trading volumes have halved since November 22, plummeting from $123 billion to $63 billion daily. This decline is partially responsible for the low volatility we've seen in Bitcoin recently. However, the key point here is the proportion of the trading volumes. With futures trading at $63 billion per day, that figure is almost 20 times larger than the $3.4 billion seen in spot Bitcoin ETFs and about 10 times greater than the spot market volumes, which are around $6 billion.

Bitcoin comparison of aggregate volume metrics

Even if the ETF outflows are a reality and clearly noticeable, they are not the main driver behind the current market conditions. Darkfost pointed out that while ETFs have experienced significant withdrawal amounts in recent weeks, futures markets remain the primary force influencing overall volumes.

He emphasized the importance of understanding net taker volume, a derivatives metric that helps determine whether aggressive buying or selling activities are prevailing in the market. Darkfost observed that each time net taker volume dips into negative territory, Bitcoin has historically entered a correction phase, indicating that selling volume is surpassing buying volume. This negative trend has persisted for several months, aside from a brief period in early October where Bitcoin briefly reached a new all-time high.

Despite the current challenges, there seems to be a slight positive shift in the net taker volume, as Darkfost noted that selling pressure from futures has decreased from about -$489 million to -$93 million since early November. He described this development as a positive sign, although it's not enough to alter the existing market trends, which remain weak.

Bitcoin Net Taker Volume

The Importance of Demand in the Market

In a separate discussion, Julio Moreno, the Head of Research at CryptoQuant, emphasized the importance of demand factors over price-based cycles. Moreno highlighted that while many analysts focus on price performance to gauge market cycles, they should instead concentrate on demand metrics. He pointed out that Bitcoin's demand is contracting monthly and is significantly slowing down on an annual basis, with the potential to dip into negative territory soon.

Bitcoin apparent demand growth

In addition to the futures market's influence on Bitcoin's stagnation, selling pressure from long-term holders (LTHs) has also played a crucial role in Bitcoin's recent performance compared to stocks and gold. Recent reports suggest that LTHs have paused their selling activities, with around 10,700 BTC shifting to long-term held coins. However, leading analyst CryptoVizArt from Glassnode noted that LTHs are not entirely out of the market. In fact, they are still selling approximately 7,300 BTC daily, but at a slower rate, indicating a cooldown after months of extensive distribution rather than a clear shift toward accumulation.

Bitcoin Realize Price by Age

While Darkfost agrees that LTHs do not entirely cease selling, he highlighted a difference in perspective. Although distribution from LTHs seems to have plateaued temporarily, the recent changes in supply suggest that the amount of Bitcoin becoming long-term holdings matches the volume being sold by LTHs to short-term holders (STHs).

As of writing, Bitcoin's trading price stands at approximately $87,972.

Bitcoin price chart

This analysis underscores the intricate dynamics of trading volumes, supply changes, and demand in determining Bitcoin's market performance and future direction.