Bitcoin: Derivatives Markets Lag as Spot Rally Strengthens

While the recent Bitcoin rally has been strongly supported by the spot market, traders in the derivatives markets have been slower to adjust.

The recent Bitcoin (BTC) rally has been largely driven by strong demand in the spot market, while traders in the derivatives markets appear to be adjusting more slowly to the shifting market dynamics.

One of the key indicators to gauge sentiment in the derivatives space is the open interest (OI) in perpetual futures markets, typically denominated in BTC. By tracking the weekly changes in OI across major platforms, we can observe whether speculators were caught off guard by price movements.

Since January 2025, the OI metric has proven useful in pinpointing moments when market participants were surprised by Bitcoin’s direction. For instance, during the descent below $80k, OI contracted by over 10% each week, signifying that over-leveraged long positions were being liquidated as prices approached liquidation levels.

In contrast, a similar dynamic unfolded during the recent rally above $90k, with OI contracting again. However, this time, the contraction indicated a short-side squeeze.

(Chart: Glassnode)

These “shakeouts,” where excessive leverage is purged, are common in the early stages of a new market trend. The short squeeze in particular suggests that the rally has largely eliminated any remaining overly pessimistic positioning, setting the stage for a healthier trajectory for further upward movement.

As short positions were flushed out, futures open interest decreased by 10%, sliding from 370k BTC to 336k BTC. This reduction provides insight into the magnitude of the short squeeze and reduces the potential for a sudden deleveraging event, which would otherwise contribute to heightened volatility in the near term.

Another crucial indicator of market sentiment in the derivatives space is the funding rate, which reflects the directional bias of perpetual futures markets. Despite the bullish price action in recent weeks, the funding rate remained remarkably neutral, implying that leveraged long positions are not yet excessive.

Since late April, funding rates have been gradually recovering, now stabilizing around 0.007% (roughly 7.6% annually). This positive shift denotes a healthy appetite for long positions without an overbearing presence, indicating a stable outlook in the derivatives market.

Options Market: A Growing Optimism

Further insight into market sentiment can be gleaned from options market data, specifically the 1-Month 25 Delta Skew. This metric measures the disparity in implied volatility (IV) between 25-delta puts and 25-delta calls. A negative skew indicates that calls are pricier than puts, usually suggesting a more aggressive stance on upside movement—a sign of bullish sentiment.

Currently, the 25 Delta Skew (1M) stands at -6.1%, implying that call options are more expensive than put options. This shift toward risk-on behavior reflects a growing bullish speculation in the options market.

While not a definitive indicator, sustained negative skew, especially following a significant price increase, is a sign of rising optimism.

For the options market to align with the bullish dynamics in the spot market, we would want to see the skew remain below or around neutral. This would further strengthen confidence in the strength of the rally.