As the U.S. Securities and Exchange Commission (SEC) nears its decision on the country’s first spot Bitcoin exchange-traded fund (ETF), crypto market participants have pulled back, causing a significant drop in derivative market activity. According to CryptoQuant, the decline is due to increased costs of opening long positions and a rise in profit-taking among investors.
Bitcoin started the year trading around $42,400, surged to $45,800 on January 2nd, but then fell to $41,800 on January 3rd. This high volatility was met with relatively low activity in derivative markets.
CryptoQuant analysts note that the open interest in perpetual futures markets remains low, indicating that BTC investors and traders have paused opening long positions and started taking profits following the December 2023 price rally. This is evident from the lowest levels of leveraged positions since January 2022.
The increasing costs of opening long positions have deterred traders from entering the perpetual futures market. Costs are as high as they were when BTC and ETH prices reached all-time highs in November 2021. The dominance of sell volume in these markets suggests a focus on profit-taking following recent rallies, with short-term unrealized profits remaining high, potentially indicating a price correction on the horizon.
Data reveals that market participants, including Bitcoin miners and short-term investors, face unrealized profits with margins up to 30%. Typically, an increase in profitable spending on BTC follows short-term losses after rallies. The crypto community continues to anticipate a rise in Bitcoin’s value with the SEC’s potential approval of spot ETFs between January 8-10. However, CryptoQuant analysts warn that the much-anticipated spot ETF approval could lead to a “buy the rumor, sell the news” scenario, causing Bitcoin’s price to drop.