Bitcoin Surges 1.96% to $106k as Buying Volume Dominates Derivatives Market

Bitcoin's price has shown significant volatility over the past week, with the cryptocurrency climbing by 0.85% to hit $106k after dropping to $103k, its lowest level of the week. This price movement has been accompanied by a shift in the derivatives market, where Bitcoin's buying volume has regained dominance. The Taker Buy/Sell Ratio on CryptoQuant recently climbed above 1 for the first time since 17 April, indicating renewed confidence among traders who are placing long positions in anticipation of further gains.

This uptick in buying has been accompanied by a surge in Bitcoin’s Open Interest, which reflects the total value of unsettled derivative contracts in the market. Open Interest rose from $33.3 billion to $33.7 billion, implying that more contracts have been opened in recent days. The uptick in Open Interest, alongside the appreciation in price, could mean that these new contracts are mostly from buyers. However, while the hike in Open Interest has contributed to Bitcoin’s recent price gains, it also carries the risk of a sharp pullback. Previous declines of 20%–25% have led to price drops of between 7%–21%, pushing the asset into corrective phases. At the time of writing, Bitcoin had gained by just 1.96%, and any sudden drawdown could pull the asset down by as much as 20%.

Analysis of spot market trading activity hinted at a general consensus between spot and derivative traders. Total spot market purchases this week amounted to $629 million worth of Bitcoin. This buying pressure from spot traders has likely helped prevent the asset from falling below the $100,000-level this week. If this trend of sustained buying persists through the weekend, it could inspire more long positions in the derivatives market – Further strengthening Bitcoin’s chances of a rally.

An analysis of Bitcoin exchange inflows—which track how much BTC investors are depositing onto exchanges—revealed a major decline. Figures for the same indicated that after steadily falling from its previous high this week, inflow levels have now hit their lowest point of the year. Such a sharp decline could also mean that investors are choosing to hold their Bitcoin, rather than preparing to sell. Such behavior usually implies a long-term bullish outlook.

Analysis of Bitcoin’s 1-day chart supported the idea of an imminent rally – Hinting at a strong move to the upside. At the time of writing, Bitcoin was trading within a symmetrical triangle—a typical precursor to a breakout. On the price chart, BTC seemed to be approaching the key resistance level at $106,141 too. A successful breakout past this level would imply that the next major resistance lies at the upper boundary of the triangle pattern. If Bitcoin climbs past that level, it would likely reclaim its all-time high of $112,000.

Despite the potential for a rally, analysts caution that Bitcoin faces one more major obstacle before it can rally back to its previous all-time high. The recent developments in the derivatives market suggest that while there is potential for a strong rally, there is also a risk of a sharp pullback. The current market conditions, with sustained buying pressure and a long-term bullish outlook, could inspire more long positions in the derivatives market, further strengthening Bitcoin’s chances of a rally. However, the risk of a sharp pullback remains, and any sudden drawdown could pull the asset down by as much as 20%.