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NEW DELHI: With over 50% drop in derivatives since May, the direction of the next large move is likely to strongly reflect underlying supply and demand, rather than a speculative premium or discount, according to a note by blockchain data provider Glassnode.

Since the sell-off in May, futures open interest has remained bound between $10.7 billion and $13.0 billion with only a handful of notable builds or declines within that range. Open interest remained 57% below the all-time high set in April as cryptocurrency exchange Coinbase went public.

As per Glassnode note, volumes across futures markets are also in decline, falling back to $45 billion traded per day.

“These volume levels were last seen in Q1 2021 where prices were trading in a similar range ($29,000 to $38,000). This puts current volumes 62.5% and 49% lower than the May and June capitulations, respectively," the note added.

Options markets are experiencing a similar slow-down, with open interest falling by over 67% since typical highs of $13.2 billion in March and April. Current options open interest is at $4.4 billion, returning to December 2020 levels.

“With such a significant decline across all derivatives markets, it becomes increasingly likely that market volatility will be driven by spot volumes, rather than short/long squeezes or leveraged liquidations," Glassnode added.

The note also said that there were early signs of recovery in bitcoin mining activity. As per Glassnode data, the hash-rate recovered from the peak-trough decline of 55% to around a 39% decline last week.

Meanwhile, a note by digital asset manager CoinShares showed that digital asset investment products saw minor outflows totaling $4 million last week in what was the quietest trading week since October 2020.

“Minor outflows were seen in bitcoin totaling $7 million last week while trading volumes in investment products totaled just $1.58 billion for the whole week, the lowest since October 2020," the asset manager said in a note.

Ethereum saw very minor inflows totaling $0.8 million while Binance and Cardano saw inflows of $0.4 million and $0.6 million, respectively.

Multi-asset investment products were the most popular last week with inflows totaling $1.2 million.

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