Strong demand in the spot market and the closing of shorts in January led to Bitcoin’s biggest rally since October 2021. For the first time since the FTX crash, futures have gone into contango, and exchange outflows have been replaced by inflows.
#Bitcoin markets have seen the strongest monthly price performance since Oct-2021.
This rally is fuelled by both spot demand, and a sequence of short squeezes
We explore these dynamics across derivatives markets, and spot exchanges in our latest piece👇https://t.co/yNWSv2eI2A
— glassnode (@glassnode) January 30, 2023
As bitcoin recovered to its highest since August 2022, there were three waves of $495 million short liquidations on derivatives exchanges.
The initial movement caught many by surprise – at that time, longs accounted for only 15% of the forcibly closed contracts. For comparison, at the time of the collapse of FTX, this figure was 25%.
In perpetual contracts and in calendar futures, the basis returned to positive territory, amounting to 7.3% and 3.3% in annual terms, respectively. Prior to that, in November-December, backwardation was observed.
The liquidations led to a reduction in leverage in the derivatives markets. Over the past 75 days, the share of open interest (OI) in relation to the volume of exchange balances in the spot market has collapsed from 40% to 25%.
In quantitative terms, OI fell from 650,000 BTC to 414,000 BTC. Analysts specified that 95,000 of the “lost” BTC were on the FTX exchange.
The share of bitcoins on the wallets of the platforms monitored by Glassnode in relation to the supply of digital gold has dropped to the lowest 11.7% since February 2018. After net daily outflows of $200-300 million in November-December, the situation stabilized in January, with an average inflow of $20 million per day.
From January 21 to January 27, $117 million went into cryptocurrency investment products, the highest since July 2022.