As a result of the price increase, there was a decisive change in market sentiment. The phase of low volatility and muted trading activity suddenly gave way to intense buying and selling. Daily volumes on centralized crypto exchanges have reached maximum values not seen in the last two quarters. Although the development directly related to Bitcoin was behind this turnaround, other altcoins were also ignited by the spark. The combined volume of all altcoins surged past $15 billion last week, which is more than the volume of Bitcoin.
Additionally, BTC supply on exchanges has seen a noticeable increase. Higher prices enticed holders to abandon their hoarding mentality and lock in profits.
With this in mind, there has been no significant increase in liquidity on the exchanges. The depth of the bitcoin market was around $100 million in the past two weeks. Market depth refers to the number of buy and sell orders at different price levels on each side of the median price. The greater the depth of the market, the less likely that large orders will affect the price of Bitcoin.
Speculative interest in bitcoin has surged after its most significant jump in 2023. Funding rates, which represent the cost of holding bullish long or bearish short positions, have turned positive for perpetual futures on exchanges. This indicated a bullish trend in the market.
Open Interest slowly grew. The value locked in active futures and perpetual futures contracts grew at a much weaker rate compared to the spot price. The initial rise in OI was built on strong buying pressure, as indicated by the positive reading of the Delta volume indicator. Numerous long positions were opened during this period, as shown by the Net Longs indicator.
However, once the uptrend stopped and BTC consolidated around the $34,000 level, the strength of the buy orders began to wane. The volume delta tended to move towards zero and even dipped into negative territory on several trading days. Leveraged bear traders began to dominate the market as short positions outweighed long positions in the market. The rally upset the market and brought with it much needed volatility. A sustained increase in implied volatility has been observed over the past 10 days or so. Implied volatility measures future expectations of price movements. Based on these observations, continued volatility should be expected in the near term, despite the fact that there were no significant volatility triggers until January.
Bitcoin's bull rally has also led to further separation from tech stocks. The 30-day correlation coefficient between the royal coin and the NASDAQ 100 fell into negative territory for the first time since July.
Notably, Bitcoin moved less in tandem with traditional market bells in 2023. The prospect of spot ETFs has aided this disconnect, with the crypto market increasingly responding to crypto-specific catalysts. Strong evidence of this trend was how the stock and crypto markets reacted to the ongoing conflict in the Middle East. While stock markets felt the brunt, Bitcoin saw rapid gains.