11 times the spot trading volume! Derivatives-fueled Bitcoin Sandcastle Rally!

▲ Bitcoin ©CoinReaders

A strong warning has emerged that the recent rally of the leading cryptocurrency, Bitcoin (BTC), which surpassed $76,000, might be a sandcastle built not on robust buying momentum but rather on unstable short covering in the derivatives market, leading to increased caution in the market.

According to FXStreet, an investment media outlet, on April 28 (local time), Wintermute, a cryptocurrency market-making firm, diagnosed that Bitcoin's recent surge is driven by forced position liquidations in the derivatives market rather than widespread market conviction. Wintermute cited as evidence that perpetual futures trading volume is a staggering 11 times that of spot trading volume, and funding rates have consistently remained negative. The fact that 95% of the recent massive $762 million liquidation event was concentrated in short positions clearly demonstrates that this rally is entirely dependent on short squeezes (buying pressure that occurs to liquidate or cover short positions) rather than spot demand.

Wintermute drew a line, stating that while it is positive that institutional investor participation is gradually improving behind the scenes and Bitcoin has surpassed $76,000, this does not yet signify a complete reversal of the macroeconomic trend. They particularly warned that this week's scheduled meeting of the U.S. Federal Open Market Committee (FOMC) and the earnings announcements of the Magnificent Seven tech giants will be the real test to determine the sustainability of the rally.

These macroeconomic events could either justify the current rally or starkly expose the contradiction between a stock market at all-time highs, soaring energy costs, and plummeting consumer confidence. Wintermute pointed out that the most crucial observation point will be whether Bitcoin falls alongside as a mere risk asset when the stock market falters, or if it demonstrates defensive strength as a store of value. If Bitcoin maintains its price despite a drop in the Nasdaq index, it would be the strongest signal of a store of value in this cycle; however, if it plummets together, it would imply that it is still governed by macroeconomic risk sentiment.

Meanwhile, in the altcoin market, signs of a clear differentiation phase are being detected as correlations between tokens ranked from 10th to 250th are breaking down. While overall altcoin returns are stagnant, funds are flowing into specific theme coins, such as privacy-focused tokens. DeFi tokens, on the other hand, are showing mixed performance amid selective investor approaches in the aftermath of the recent KelpDAO hacking incident.

As of the time of writing, Bitcoin is catching its breath around $76,370, having fallen approximately 1% over the past 24 hours, ahead of major macroeconomic events.

*Disclaimer: This article is for investment reference only, and we are not responsible for any investment losses based on it. The content should be interpreted for informational purposes only.*