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Crypto market participants are on the sidelines as the US Securities and Exchange Commission (SEC) nears a decision on the country’s first spot Bitcoin exchange-traded fund (ETF). This withdrawal has led to a significant drop in investor activity in the derivatives market. According to a weekly report by the on-chain data platform CryptoQuant, derivative market activity has significantly decreased due to the rising costs of opening long positions and an increase in profit-taking among investors.
Dominance in Derivative Markets Shifts to Shorts
Bitcoin (BTC) started the year trading around $42,400 and surged to $45,800 on January 2nd, only to fall back to $41,800 on January 3rd. This high volatility in price was accompanied by relatively low activity in the derivative markets.
CryptoQuant analysts indicate that open positions in perpetual futures markets remain low, suggesting that BTC investors and traders have paused opening long positions and even started taking profits after the price rally in December 2023. This is evident from the leverage positions, which have fallen to their lowest levels since January 2022.
The increasing costs of opening long positions have also deterred traders from entering the perpetual futures markets. Costs are currently as high as they were when the prices of BTC and ETH reached all-time highs in November 2021. Particularly, the trading volume ratio being below the level of 1 indicates that selling volume dominates the perpetual futures markets due to investors focusing on taking profits after recent rallies. Despite an increase in sell orders, short-term unrealized profits remain high, which exacerbates the situation before a potential price correction.
Short-Term Unrealized Profits Remain High
Data reveals that market participants such as Bitcoin miners and short-term investors face unrealized profits with margins up to 30%. Typically, an increase in profitable spending on BTC is seen after short-term losses during rallies.
This situation emerged as traders began paying more to open long positions, threatening to pull BTC down to the realized price of $32,000 for short-term investors. Nevertheless, the crypto world continues to await a Bitcoin rise with the SEC’s potential approval of spot ETFs between January 8-10. CryptoQuant analysts warn that the largest cryptocurrency could fall due to current market developments, and the much-anticipated spot ETF approval could lead to a “buy the rumor, sell the news” outcome, causing Bitcoin’s price to drop.
