State Of The Bitcoin Derivative Market

The below is an excerpt from a current edition of Bitcoin Magazine Pro, Bitcoin Magazines premium markets newsletter. To be among the first to get these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.While it is clear today that the dominant driver in the bitcoin market is its connection to equity markets, our company believe that a true decoupling will occur eventually, and the seeds of that decoupling most likely might be sown in the derivatives market. First of all, a major advancement over the last 2 years has been the “dollarization” of collateral type in the derivatives market, getting rid of much of the downside convexity that features a bulk of collateral being bitcoin itself.Futures open interest portions with bitcoin collateralWhile a large liquidation occasion in the bitcoin market is less most likely than March 2020 based simply on the security makeup in the market today as well as the positioning of the contracts (shown below), it is clear that global equity and credit markets are in free fall. With this in mind, and the truth that spot markets have soaked up an enormous amount of offering pressure in recent weeks, one would be a good idea to keep a close eye on the derivatives market going forward.Bitcoin cost weighted by perps funding rateFinal Note The Federal Reserve is on a mission to reverse engineer the notorious wealth effect, with the concept that falling property rates will dampen customer self-confidence and spending, and slow down the unprecedented inflation being witnessed around the world.If worldwide markets are headed for a snapping point, you can expect bitcoin to deal with steep pressure also. What isnt known is the number of bitcoin investors/speculators are still in the market left to worry, and whether the selling that would come would be through spot markets or more primarily through shorting through bitcoin derivatives. In either scenario, it is likely that a horde of bottom shorters will stack on attempting to drive bitcoin into the dirt (this will be able to be seen through a deeply unfavorable perpetual futures financing rate). This will ultimately cause a big rebound in the rate of bitcoin, and likely a decoupling/outperformance of other danger assets that have been so firmly correlated with bitcoin in recent months. Chance lies ahead..

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