When the established derivatives exchange launched the product, BTC surged dozens of percent higher in the days that followed, only to crash from $20,000 to around $6,000 within two months. The timelines suggested that it was the futures market that depressed prices, just look at the chart below.
Bitcoin price chart in the wake of futures launch. Chart from Tradingview.com.
This has largely been painted as a conspiracy theory, but a top analyst recently threw his weight behind the sentiment. He said that futures are “slowing this vision” of Bitcoin passing $1 trillion down.
On-Chain Analyst: Futures Market Depresses Bitcoin
In an extensive thread published May 8th, Willy Woo, a prominent on-chain analyst and Bitcoin investor, noted that the ongoing halving will change one core thing: exchanges will be the biggest net sellers of coins.
To fund their operations, exchanges need to sell coins, which they obtain by taking trading fees from investors. Woo is arguing that after the halving, it will be the exchanges that are selling Bitcoin. Futures exchanges, especially, he explained.
The analyst specifically drew attention to BitMEX, which has become so integral to crypto that it transacted $16 billion worth of volume in a single day. Yes, $16 billion. On this exchange in particular, Woo wrote:
“When I look at the long term price chart of BTCUSD 2017-2020, the rise of the BitMEX style futures exchanges has made a irrevocable footprint on the price, we have much more sideways now from the additional sell pressure.”
Along with futures exchanges creating selling pressure, Woo added that they likely increase volatility, noting how large traders are incentivized to liquidate the majority by creating volatile price action.
Post this 2020 halvening miners will cease to be the biggest sellers of Bitcoin. It’ll be the dawn of the crypto exchange as the leading seller.
The biggest sell pressure on Bitcoin will soon be from exchanges selling their BTC fees collected into fiat.
— Willy Woo (@woonomic) May 9, 2020
Considering that futures are now dominating the market, Woo concluded by explaining that futures trading slows the vision of Bitcoin exceeding $1 trillion, then $10 trillion down.
It’s a Spot Driven Rally
Woo’s assertion is one that was corroborated by a report from the San Francisco Federal Reserve, yet times are changing.
According to market data shared by traders, the ongoing move, the one that brought Bitcoin from the $6,000s to $10,000 today, was driven by the spot market. This means that the somewhat-bearish thesis laid out by Woo regarding futures is partially invalidated.
As shared by Mohit Sorout, a partner at Bitazu Capital, much of BTC’s move last week ($7,500 to $9,500) was catalyzed by spot market activity. He noted that BitMEX’s open interest metric hit an all-time low while BitMEX Bitcoin traded at a discount to Coinbase, indicating it was retail and institutional players buying Bitcoin for cash rather than individuals longing futures contracts.
Bitmex OI hits a new All Time Low. This $btc rally was purely a spot dominated ripper.
Incredible. pic.twitter.com/fpYMxz9nhS
— Mohit Sorout 
(@singhsoro) April 30, 2020
This has been corroborated by the fact that BitMEX’s funding rate, a sign of the directionality of leverage traders, has been effectively at 0% (and even negative) for the past few weeks. This suggests that neither longs nor shorts are overleveraged.
With the spot market clearly driving the ongoing rally while futures lose traction, Bitcoin’s rally is that much more credible and sustainable.
But for this trend to continue, BTC will need to continue to rally on the back of buying pressure on sites like Coinbase, which minimize leverage and actually takes supply off the market, as opposed to the “cash not physical” model of most derivatives.
Photo by Chris Liverani on Unsplash