Bitcoin Futures has recently shot lower and over 310,000 BTC away from exchanges over past two months, what this trend means for King of Crypto?
Data from Bitcoin derivatives markets shows that BTC is primed for a bounce. The same data set indicating this is the exact same data set that called the $10,000 top ten days ago.
Bitcoin Futures on derivatives exchanges have recently shot lower
As financial derivatives — such as futures and options — have become increasingly important to the Bitcoin market over the past few months, so too has the data these markets provide.
The funding rate is the fee that long positions pay short positions to effectively stabilize the market. Extreme funding rates indicate that one side of the market is overleveraged.
Bitcoin derivatives data shared by crypto trader “Byzantine General” (@Byzgeneral on Twitter) to his Telegram channel.
In this case, with the funding rate well into negative territory, there are more aggressive Bitcoin futures sellers than buyers.
Logic would suggest that with intense selling pressure, BTC should sink. Yet extreme funding rates, like the low rates seen right now, are often seen at the reversal of trends, not in the midst of a trend.
Adding to the confluence, one trader noted on Sunday that the quarterly Bitcoin futures on the OKEx exchange have begun to trade below the price of BTC on Bitstamp/Coinbase by a handful of basis points.
Each time the quarterly futures have traded at a discount to the primary market, prices have found themselves at a local bottom, he explained. Case in point: just a day before the block reward halving, BTC bottomed at $8,100 when the futures began to trade at a discount to the spot market.
Chart of Bitcoin and quarterly BTC futures from trader “RJ” (@RJ_killmex on Twitter)
Over 310,000 Bitcoin has Left Exchanges Since “Black Thursday”
Bitcoin, which was trading at $8,000 in the early morning hours of the day, saw a sharp decline that led it down to the lower-$5,000 region, but the losses didn’t stop here.
The liquidation of these positions began to cascade, making it nearly impossible for buyers to absorb any of this selling pressure.
This decline ultimately led BTC to lows of $3,800 and ended as soon as BitMEX halted trading due to a “hardware issue.”
In the time since this occurred, investors have been moving their Bitcoin away from exchanges at an unprecedented rate.
#Bitcoin has seen its largest prolonged withdrawal of funds from exchanges.
According to our data, over 310,000 $BTC have moved out of exchanges since Black Thursday.
Largest outflows:
Bitfinex: -126,845 BTC
Huobi: -95,496 BTC
BitMEX: -95,438 BTCData: https://t.co/cOtaJawJq9 pic.twitter.com/ZA2hple9O4
— glassnode (@glassnode) May 25, 2020
What This Trend Means for BTC?
There are likely two primary factors driving investors to pull their Bitcoin from exchanges.
The fact that BitMEX has largely been deemed responsible for the decline has led to a resurgence in distrust of centralized entities – like exchanges – sparking investors to move their tokens into their own cold wallets.
The trend may also be emblematic of investors pivoting to a long-term investment strategy as Bitcoin begins performing well against a backdrop of global turbulence.
Either way, lengthy transaction times and rising fees suggests that traders may not be overly prone to transfer this Bitcoin back into exchanges. As such, this could provide Bitcoin with some stability.
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