Since the latest Bitcoin rally started, there has been speculation going on as to whether derivatives fuel the surge. Here’s what Glassnode says.

In its latest weekly report, the on-chain analytics firm Glassnode has talked about what the derivatives side of the market has looked like while the latest rally in the asset has occurred.

First, the report has looked into the open interest of the perpetual swap markets, where “open interest” refers to the total amount of Bitcoin contracts currently open. The metric has been measured in terms of BTC here so that the USD price fluctuations don’t affect the trend.

From the chart, it’s visible that the Bitcoin open interest saw two large liquidation squeezes back in January and August, with the former one being a short squeeze and the latter one being a long squeeze.

Since the latest rally started, BTC has observed two liquidation events: one of 25,000 BTC and the other of 33,000 BTC. This combined short squeeze is now of the same scale as the aforementioned mass liquidation events.

In terms of the USD values of the liquidation events, the latest squeeze is again comparable with the other ones this year:

On the topic of liquidations, Glassnode reveals that, interestingly, the market has been dominated by long liquidations throughout the history of Bitcoin. There have only been a few phases where shorts have dominated the longs over 30 days.

The latest large short liquidations have resulted in the shorts just overtaking the longs, as the chart below shows.

Curiously, it would appear that during the few periods that the short liquidations have dominated the market (highlighted in yellow), Bitcoin has observed a point of extreme in its price.

While the liquidation data would suggest that the derivatives have indeed played a role in driving the market through this latest rally, the funding rates could tell a different story.

“Of note is that funding rates and cash-and-carry basis in futures markets have remained relatively calm all things considered,” explains Glassnode. “2023 has generally seen futures markets yield annualized rates over 6%, which are greater than US treasury rates.”

Back in August, however, the selloff cooled off these funding rates, and they have since remained relatively low. Even with the latest chaos in the market, the metric still hasn’t seen any significant uptick. The analytics firm notes that this could imply the Bitcoin rally is only partially driven by leveraged speculation.

At the time of writing, Bitcoin is trading at around $34,300, up 23% in the past week.

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