But fresh on-chain and futures market data show positive signs that the leading cryptocurrency by market capitalization is beginning to recover.
After a swarm of short liquidations, the futures market signals a renewed equilibrium. According to data from Glassnode, liquidation of short positions has filtered out unhealthy speculators in the market, and cross-chain and exchange data now indicates an improvement in spot market and net exchange inflows.
A large group of investors who were previously at a loss have returned to a category Glassnode analysts describe as “unrealized profits”.
Massive short liquidations paved the way for new investors to thrive
Futures data usually contains a balance between buy and sell positions. As the market moves, investors tend to update their future contracts to avoid liquidation. On the contrary, in mid-January, investors were caught off guard resulting in an unprecedented 85% surge in short liquidations.
Filter futures contracts long vs. short ratio. Source: Glassnode
The dominance of the short liquidation helped fuel Bitcoin’s current rally. In January, more than $495 million in short-term futures contracts were liquidated. Filtered short selling triggers automatic buying of Bitcoin, driving up the price of BTC. The year-to-date qualifiers have three big waves, peaking at $165 million in a single day of liquidation.
total filter. Source: Glassnode
After the historic amount of short liquidation, the futures market is turning towards long positions. On January 30, 51.46% of the open interests are long rather than short.
The ratio of buying to selling. Source: Coinglass
Not only did the liquidation of short positions help the Bitcoin price rally, but it also seemed to indicate a return of positive sentiment in the BTC market.
Glassnode researchers said:
Across both perpetual swaps and calendar futures, cash basis and carry are now back in positive territory, returning 7.3% and 3.3% annually, respectively. This comes after most of November and December saw all futures markets lag, indicating a return to Positive vibes, perhaps with a speculative side.”
Bitcoin annual premium. Source: Glassnode
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Central exchange flows reach equilibrium
In March 2020, Central Exchange (CEX) Bitcoin balances reached an all-time high. Since then, Bitcoin has flowed out of spot exchanges. Approximately 2.25 million bitcoins are currently held on 21 of the largest exchanges, which is the lowest level in several years. The last seen as high as 11.7% of the total supply of bitcoin on centralized exchanges was in February 2018.