As Bitcoin continues to gain popularity as a form of investment, analysts at Bitfinex Alpha report that an increase in new market participants indicates that we may be in the early stages of a Bitcoin bull market. BTC derivatives volumes have started to have a greater influence on Bitcoin prices, with derivatives trading increasing at a faster rate than spot trading volume, which in turn is driving volatility.
Bitcoin Spot, Derivatives, and Options Trading Volumes
According to the analysts at Bitfinex, the weekly Bitcoin spot trading volume recorded its highest-ever reading last week, as the 7-day Moving Average of Bitcoin trading volumes on exchanges rose to around $24 billion. The derivatives market also saw the trading volume of Bitcoin futures across various exchanges come close to $1 trillion, while Bitcoin options open interest rose to $12.14 billion. This suggests that institutional investors are increasingly participating in the market, which is a strong indicator of a potential bull market.
Increasing Volatility: A Result of Increased Activity
According to the analysts, even though the increased activity might sound enticing to investors, it is generally followed by increasing volatility. This is something to keep in mind for investors who are considering entering the market during this time.
Positive Signals for the Market
The analysts at Bitfinex Alpha also noted some positive signals for the market. They stated that the BTC Long-term Holder (LTH) Spent Output Profit Ratio (SOPR) is now returning to a level greater than one, on multiple timeframes, indicating that coins are being moved at a profit. The behaviour of long-term Bitcoin holders selling their coins during current market conditions is consistent with previous bear market trends, which is a positive signal for the market.
Supply and Demand Dynamics
Furthermore, when comparing the supply held by long-term holders (LTH) to the supply last active one year ago or longer, it is clear that the former is declining while the latter is steadily increasing. As a result, the liquid supply of Bitcoin remains limited and is becoming even more so as this latter group continues to buy and hold. This is healthier for the market as this represents supply distribution rather than HODLers losing conviction.
Bitcoin Bull Market Prospects
Bitcoin price hit a multiple-high above $28,683 mid-last week at the height of bank collapses in the US, something that some believe was responsible for the Bitcoin rally. BTC price has since then consolidated and was at $26,950.60 at press time. If Bitfinex analysts’ market analysis is anything to go by, the market could see a Bitcoin bull market that would see it try to break above $30,000 anytime from now, especially seeing that it is currently in consolidation.
In conclusion, the recent increase in Bitcoin trading activity and derivatives volumes, as well as the participation of institutional investors, is a strong indication that we may be in the early stages of a Bitcoin bull market. However, it is important to keep in mind that increased activity is often followed by increased volatility. Nevertheless, the positive signals for the market and the supply and demand dynamics suggest that the market is healthy and poised for growth.
- What is a Bitcoin bull market?
A Bitcoin bull market refers to a period when the price of Bitcoin is steadily rising over a prolonged period. During a bull market, there is typically increased demand for Bitcoin, which results in rising prices. This can be a great opportunity for investors to buy and hold Bitcoin in anticipation of further price increases.
- What is the BTC Long-term Holder (LTH) Spent Output Profit Ratio (SOPR)?
The BTC Long-term Holder (LTH) Spent Output Profit Ratio (SOPR) is an indicator that measures the profit ratio of Bitcoin long-term holders. When the LTH SOPR is greater than one, it indicates that the coins are being moved at a profit. This is a positive signal for the market, as it shows that long-term Bitcoin holders are selling their coins during favorable market conditions.
- What is Bitcoin derivatives trading?
Bitcoin derivatives trading refers to the buying and selling of financial instruments that derive their value from the price of Bitcoin. These instruments include Bitcoin futures and options contracts. Derivatives trading allows investors to speculate on the future price of Bitcoin without actually owning the cryptocurrency.
- What is the difference between Bitcoin spot trading and derivatives trading?
Bitcoin spot trading involves buying and selling actual Bitcoin on an exchange at the current market price. In contrast, Bitcoin derivatives trading involves buying and selling financial instruments that derive their value from the price of Bitcoin, such as futures and options contracts. While spot trading is more straightforward, derivatives trading allows investors to speculate on the future price of Bitcoin without actually owning the cryptocurrency.
- What impact do institutional investors have on the Bitcoin market?
Institutional investors can have a significant impact on the Bitcoin market, as they are often large investors with a lot of capital to deploy. When institutional investors start participating in the market, it can lead to increased demand for Bitcoin, which in turn can drive up prices. Additionally, the involvement of institutional investors can help to increase mainstream adoption of Bitcoin as an investment asset.
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