Bitcoin has its best month in over a year, reaching a high of $23.900 on Sunday and posting a 43% YTD price increase, the strongest monthly performance since October 2021, according to the Glassnode research report.
The rally has been fueled by historic spot demand and a series of short squeezes, bringing the market back into profit and resulting in healthy futures trading contango.
Exchange outflows in the aftermath of FTX have balanced out, with newly motivated inflows calming the initial impulse to neutral. Over $495M in short futures contracts have been liquidated in three waves, with the initial short squeeze in mid-January taking many traders by surprise.
However, the rally set an all-time low of 15% for long liquidation dominance, a larger magnitude compared to the FTX implosion.
Futures leverage & Bitcoin-Denominated Value
Despite the basis of the positive future, total open interest relative to the BTC market cap has declined since mid-November. The BTC-denominated value of open futures contracts has dropped 36% from 650k BTC to 414k BTC today.
The decline is partly attributed to the loss of 95k BTC worth of open interest held at the FTX exchange.
Additionally, leverage within the market has also declined, with the notional size of open futures contracts relative to spot exchange balances falling from 40% to 25% over the last 75 days. This reflects a significant reduction in futures leverage and closing out of short speculative interest.
As per Glassnode’s report, the decline in leverage and speculative interest is a sign of the market maturing and becoming more stable. As the end of January approaches, Bitcoin’s strong performance is a promising start to the new year following a difficult and grueling 2022.
It remains to be seen how the market will continue to develop in the coming months, but for now, Bitcoin is off to a strong start in 2023.
Nevertheless, the Bitcoin market’s strong monthly performance in January can be attributed to both historic spot demand and a series of short squeezes. As the market continues to grow, it will be interesting to see how the dynamics between futures leverage and spot demand play out in the coming months.
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