Bitcoin Derivatives Show Bulls Making Moves Despite $70K Sell-off

Key takeaways:

• Whale’s bullish positioning in the Bitcoin derivatives market is failing to counter the heavy spot selling pressure. 
• The slight discount on USDT indicates capital is exiting to fiat, exposing the Bitcoin futures leverage risks.

Bitcoin (BTC) dropped below $71,000 on Monday for the first time in seven weeks, liquidating $276 million in leveraged bullish positions as traders reduced their positions amid renewed military action between the US and Iran. Despite this heightened risk aversion, whales and market makers increased their bullish exposure in the Bitcoin derivatives markets.

Bitcoin top traders’ long-to-short position at Binance & OKX. Source: CoinGlass

At Binance, the long-to-short ratio among top traders surged to 1.4x from 1.1x one week prior. These institutional players have gradually accumulated long positions since Bitcoin broke below $76,500 on Tuesday. Meanwhile, top traders at OKX initially expanded their short positions between Thursday and Sunday, but reversed course on Monday as their long-to-short ratio jumped to 1.9x.

Bitcoin futures aggregate open interest at major exchanges, USD. Source: CoinGlass

Aggregate open interest for Bitcoin futures across major exchanges stood at $43.5 billion on Monday, remaining flat compared to the previous week. Despite the forced liquidations, traders did not rush to close their positions at a loss. Nonetheless, further analysis is required to determine whether bullish traders are relying excessively on leverage to sustain their current positions.

Bitcoin perpetual futures annualized funding rate. Source: Laevitas

The annualized funding rate for Bitcoin perpetual futures jumped above the neutral 6% to 12% range for the first time in over six months. This data hints at growing confidence among bulls, but it also heightens the risk of cascading liquidations should Bitcoin’s price fall further. Nonetheless, a modest 13% funding rate remains far from signaling market desperation.

Bitcoin spot ETF outflows contrast with AI bulls

While the weakness in Bitcoin’s price can be partially attributed to rising oil prices, the tech-heavy Nasdaq Composite Index managed a 0.5% gain on Monday. Brent crude oil jumped to $95 per barrel after US officials stated that Iran had fired two ballistic missiles overnight. Additionally, Israel carried out a military incursion into southern Lebanon over the weekend.

Investors’ intense focus on the AI sector has also contributed to capital outflows from the cryptocurrency market. On Monday, Anthropic, the developer of Claude AI, announced that it had confidentially filed its initial public offering (IPO) prospectus. Separately, Elon Musk’s SpaceX officially filed its own IPO prospectus.

Related: Bitcoin dip buyers place $500M in bids as $70K retest looms

USDT stablecoin / USD at major exchanges. Source: TradingView and Cointelegraph

Tether’s USDT stablecoin traded at a slight 0.10% discount over the past week, signaling capital outflows into traditional fiat currency. This data aligns with the $3.46 billion in net outflows from US-listed spot Bitcoin ETFs since May 13. Ultimately, heavy selling pressure in spot markets is likely the driver behind Bitcoin’s recent price correction.

It is still too early to claim that pro traders are flipping bullish based purely on the long-to-short ratio, especially following the recent spike in the perpetual futures funding rate. With no clear evidence that cryptocurrency market outflows are slowing, traders may remain skeptical of a sustainable short-term bull run, despite the relative strength in Bitcoin derivatives data.