On-chain data shows that derivative exchanges observed high activity as Bitcoin rallied towards the $29,000 level.
The Bitcoin Spot Vs Derivative Trading Volume Ratio Has Been Relatively Low Lately
As one analyst pointed out in a CryptoQuant post, the most recent price increase was largely driven by derivatives. The indicator of interest here is the “trading volume ratio,” which measures the ratio between Bitcoin trading volume on spot exchanges and that on derivative exchanges.
“Trading volume” here naturally refers to the total amount of cryptocurrency that investors transact/move on a platform or a group of platforms.
If the value of the trading volume ratio is high, it means that spot exchanges observe a high amount of activity compared to derivative platforms. On the other hand, the low values of the indicator mean that the derivative exchanges are seeing relatively high volumes at the moment.
Now, here is a chart showing the trend of Bitcoin trading volume ratio over the past year:
The value of the metric seems to have been quite low in recent days | Source: CryptoQuant
As shown in the above graph, the Bitcoin trading volume ratio dropped back in March and since then has moved mostly sideways around relatively low levels.
This would suggest that there is little activity in the market place during this time, at least compared to the volumes observed on the derivative exchanges.
Interestingly, despite the price of the asset registering a sharp jump towards the $29,000 level the previous day, the ratio failed to show any increase, which means that spot volumes continue to remain low relative to derivatives activity.
This fact suggests that the latest rally may have actually received its fuel from derivatives, rather than the spot market. Historically, rallies that begin with an increase in trading volume in the area are likely to continue for longer periods.
From the chart, it can be seen that the rise in the price of Bitcoin in January of this year started when the ratio of trading volume was at a relatively high level.
Similarly, the recovery rally back in March also started when the indicator saw an increase (although smaller). As mentioned earlier, the metric dropped shortly after this rally took place and has been at low levels ever since. During this period, BTC was not able to record any sustained movement.
The other day, however, things clearly looked different, as the rapid price increase was unlike anything the asset has shown recently. However, the fact that the number of places is still low means that the rally “looks weaker compared to the solid rallies led by the spot market at $16,000 and $19,000,” according to the number.
It now remains to be seen if the ratio will continue to be low in the coming days, or if an increase in activity in the area will be seen afterwards.
BTC Price
At the time of writing, Bitcoin is trading at around $29,100, up 12% over the past week.
Looks like BTC has seen a sharp uplift in the last 24 hours | Source: BTCUSD on TradingView
Featured image from Kanchanara on Unsplash.com, charts from TradingView.com, CryptoQuant.com
