Bitcoin: 2023’s biggest hike impacts the market in this manner

• The phase of low volatility and muted trading activity suddenly gave way to intense buying and selling.
• Bitcoin’s funding rates turned positive, suggesting a bullish narrative.

The false alarm, also viewed as the “dress rehearsal” by many analysts, launched Bitcoin [BTC] to its highest level since May 2022. The dormant crypto market became a hive of activity as the king coin soared above $35,000 on high prospects of a spot ETF approval.

How much are 1,10,100 BTCs worth today?

Uptick in trade volumes

As a result of the price rise, a decisive shift in market sentiment was observed. The phase of low volatility and muted trading activity suddenly gave way to intense buying and selling.

As per crypto market data provider Kaiko, daily volumes on centralized crypto exchanges reached highs not seen in the last two quarters. While the turnaround was led by developments directly connected to Bitcoin, the spark ignited other altcoins as well.

Indeed, the combined volume of all altcoins surged past $15 billion last week, higher than that of Bitcoin.

Source: Kaiko

Additionally, BTC supply on exchanges saw a noticeable spike, according to Santiment data. The higher prices enticed holders to abandon their hoarding mentality and lock in profits.

Source: Santiment

Having said that, there was no meaningful spike in liquidity on exchanges. Kaiko’s data showed that Bitcoin’s market depth has hovered around $100 million in the past two weeks.

As is well known, market depth refers to the number of buy and sell orders at various price levels on each side of the mid-price. The higher the market depth, the less likelihood of Bitcoin’s price getting impacted by large orders.

Source: Kaiko

A peek into the derivatives market

The speculative interest for Bitcoin spiked following its most significant leap of 2023. Funding rates, representing the cost of holding bullish long or bearish short positions, for perpetual futures turned positive across exchanges. This was suggestive of a bullish market trend.

Source: Kaiko

On the other hand, the Open Interest (OI) was slow to pick up. As shown by Hyblock Capital’s graph, the value locked in active futures and perpetual futures contracts grew at a much weaker pace when compared to the spot price.

The initial growth in OI was built on strong buying pressure, as indicated by the positive reading of the Volume Delta indicator. This period saw the opening of numerous long positions, reading from Net Longs indicator showed.

Source: Hyblock Capital

However, as the uptrend was halted and BTC consolidated around the $34,000 level, the strength of buy orders started to wane. The volume delta trended towards zero and even dipped to the negative zone on a few trading days.

Bearish leveraged traders became dominant in the market as shorts surpassed longs in the market.

More volatility expected

The rally ruffled the market and injected with it much-needed volatility. As per Kaiko’s analysis, a steady increase in implied volatility was seen in the past 10 days or so.

For the uninitiated, implied volatility gauges future expectations of price movements. Based on these observations, one should anticipate continued volatility in the short term, despite the fact that there were no substantial volatility-inducing triggers until January.

Bitcoin delinks from traditional market

Bitcoin’s bullish rally also resulted in further decoupling with tech stocks. The 30-day correlation coefficient between the king coin and NASDAQ 100 fell into the negative zone for the first time since July.

Source: Kaiko

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Notably, Bitcoin has been moving less in tandem with the traditional market bellwethers in 2023. Spot ETFs prospects have aided the disconnection, with the crypto market increasingly reaction more to crypto-specific catalysts.

Pronounced evidence of this trend was how the equities and the crypto market reacted to the ongoing Israel-Hamas war. While stock markets felt the pinch, Bitcoin made rapid gains.