Crypto market participants are moving to the sidelines, leading to low activity in the derivatives market as the date for the U.S. Securities and Exchange Commission’s (SEC) decision on spot Bitcoin exchange-traded funds (ETF) approaches.
According to a weekly report from market intelligence platform CryptoQuant, the decline in derivatives market activity is due to the rising costs of opening long positions and the spike in profit-taking among investors.
Sell Orders Dominate Perpetual Futures Markets
Bitcoin (BTC) began the year trading around $42,400, rallied to $45,800 on January 2, and fell back to $41,800 the next day. The price fluctuations have been accompanied by relatively low activity in the derivative markets.
CryptoQuant’s analysts said open interests in perpetual futures markets are still at low levels, showing that BTC investors and traders stepped back from opening long positions after the December 2023 price rally and have even begun to take profits. This is evident in market leverage falling to its lowest since January 2022.
The soaring costs of opening long positions also caused traders to refrain from buying in the perpetual futures markets. Prices are currently as high as they were when BTC and Ether reached their all-time highs in November 2021.
The Taker Buy Sell volume ratio staying below one indicates that sell volume is dominating the perpetual futures markets as investors focus on realizing profits from the recent rallies. Although there is an increase in sell orders, short-term unrealized profits are still high, and this has preceded price corrections.
High Short-term Unrealized Profits
Last week, CryptoPotato reported that market participants like miners and short-term holders were sitting on unrealized profits with margins as high as 30%, adding that while they spent BTC at a profit, rallies usually came after short-term losses have been realized.
The development came as traders began to pay too much to open long positions, threatening to push BTC to $32,000, the short-term holder realized price.
The crypto community expects BTC to rally after the SEC approves the ETFs between January 8 and 10, but CryptoQuant has warned that the asset may plummet due to current market occurrences, turning the widely anticipated announcement into a sell-the-news event.