Market analysists, honing in on the recent surge in Bitcoin, have observed that its recent record-high in 2024 has traversed uncharted market waters quite dissimilar to its 2021 bull run peak. The key difference comes down to a vital shift in the derivatives markets.
Kick-started by the spot exchange-traded fund (ETF) inflows, Bitcoin’s latest crest implicated a significant change when juxtaposed to its 2021 apex. To truly spotlight this divergence, we sweep our gaze to the derivatives markets. In this labyrinth, a “liquidation” spawns as a forced closure of any market contract tethered to the derivatives market. This usually transpires on the trading floor when a contract sustains a certain degree of losses.
The odds of a contract facing liquidation soar higher with increasing volatility in an asset’s price sticker. Dramatic rallies and heart-stopping crashes can catalyze an avalanche of liquidations in the market, but it is within this chaotic mayhem that a fascinating trend arises.
Reviewing patterns from this year’s rally, it becomes evident that short holders—those investors placing their bets on a decline—have borne the brunt of Bitcoin’s surge. In the cyclone of rapid price growth, numerous short-holding contracts would invariably get ushered towards liquidation.
However, what speaks volumes for the market’s resilience is the consistent dominance of short holdings throughout the run. It essentially uncovers an undercurrent of skepticism amongst investors, who appear to doubt the longevity of Bitcoin’s rally and hence bet against it. This narrative perseveres even in the post-top stagnation, with short liquidations continuing to outnumber long ones despite a price dip.
This paints a vastly different landscape from the 2021 bull run where long-holding investors, betting on a continued rise, faced liquidations as Bitcoin reached its zenith. It seems the tug of greed, pulling investors to ride on an upward wave until it crashed, is not visible in the current bull run.
That being said, not all the patterns in this period of investment euphoria are unprecedented. Market analyst Maartunn points out the familiar contours of the Coin Days Destroyed (CDD) metric. Generally regarded as an index of dormant coin activities, the CDD has recently achieved elevated levels. Maartunn’s prognosis suggests that this peak in Coin Days Destroyed typically coincides with Bitcoin’s apex.
However, it’s important to acknowledge that the 2021 Bitcoin peak did not follow this pattern, taking several months to form post the metric peak. At the time of writing, Bitcoin is being arduously bid at $62,200, witnessing a 5% growth over the past week. Nevertheless, there seems to be a recent slide in the trend graph, potentially sparking a thrum of tension on the trading floor.
