Bitcoin [BTC]: Derivatives demand soars, but what are its implications

• Bitcoin demand in the derivatives market takes advantage of inflows fueled by banking collapse.
• Sell pressure may put a cap on the latest rally and trigger some long liquidation, but investors are exiting.

Market events so far this month can teach investors a lot about Bitcoin’s [BTC] demand characteristics, especially those related to the derivatives market. The same observations might come in handy when making informed market decisions.

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To recap, Bitcoin’s jump from 10 March was fueled by a surge in accumulation due to the loss of confidence in the banking sector. The higher confidence was particularly evident in the derivatives market. Both the Binance open interest and funding rates metrics bounced back strongly on 12 March to a new monthly high by 19 March.

Source: CryptoQuant

Both metrics confirm a robust demand influx from the derivatives market. But what about the demand for leverage? Bitcoin’s estimated leverage ratio pivoted at 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 willing to use leverage were still relatively few.

Source: CryptoQuant

Perhaps the best example of the impact of the leverage level in the market is its impact on price changes. For example, long liquidations soared to 304.54% on 22 March due to the surge in sell pressure. Moreover, shorts dropped by a noteworthy margin during the last few days.

Source: CryptoQuant

The Bitcoin bear narrative is re-emerging

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

Source: TradingView

BTC has also been flirting with overbought conditions according to the RSI and the same applies for its MFI. This increases the chances of sell pressure pushing down the price, thus explaining why traders are exiting their positions.

The risk of more sell pressure is further exasperated by outflows from whale addresses. Addresses holding over 1,000 BTC peaked on 20 March and have trimmed their balances substantially since then. This is a sign that whales have been cashing out their short-term gains.

Source: Glassnode

The above observations highlight a higher likelihood of the bears successfully pushing down Bitcoin’s price in the next few days. However, this will depend on whether there will be any new events that may accelerate the selloff or trigger a potential pivot. If the latter occurs, then Bitcoin’s next major target will be the $30,000 price range.