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While it is clear as we speak that the dominant driver within the bitcoin market is its correlation to fairness markets, we consider {that a} true decoupling will happen ultimately, and the seeds of that decoupling possible could possibly be sown within the derivatives market.
First off, a serious improvement during the last two years has been the “dollarization” of collateral sort within the derivatives market, eliminating a lot of the draw back convexity that comes with a majority of collateral being bitcoin itself.
Futures open curiosity percentages with bitcoin collateral
While a big liquidation occasion within the bitcoin market is much less possible than March 2020 based mostly purely on the collateral make-up out there as we speak in addition to the positioning of the contracts (proven under), it is clear that world fairness and credit score markets are in free fall. With this in thoughts, and the fact that spot markets have absorbed a massive amount of selling pressure in recent weeks, one could be sensible to hold an in depth eye on the derivatives market going ahead.
Bitcoin value weighted by perps funding price
Final Note
The Federal Reserve is on a mission to reverse engineer the notorious wealth impact, with the concept that falling asset costs will dampen shopper confidence and spending, and decelerate the unprecedented inflation being witnessed world wide.
If world markets are headed for a breaking level, you possibly can anticipate bitcoin to face steep strain as effectively. What isn’t recognized is what number of bitcoin buyers/speculators are nonetheless out there left to panic, and whether or not the promoting that will come could be by spot markets or extra predominantly by shorting by way of bitcoin derivatives.
In both situation, it is possible {that a} horde of backside shorters will pile on trying to drive bitcoin into the dust (this might be ready to be seen by way of a deeply unfavorable perpetual futures funding price).
This will ultimately lead to a big rebound within the value of bitcoin, and sure a decoupling/outperformance of different threat belongings which have been so tightly correlated with bitcoin in current months.
Opportunity lies forward.
