Low trading volume for Bakkt options indicates Wall Street's silence during this Bitcoin rebound.

Skew's data indicates that throughout the entire week, Bakkt, the Bitcoin futures market operated by Intercontinental Exchange (ICE), the parent company of the New York Stock Exchange (NYSE), saw almost no trading volume in its options products.

The relatively low trading volume in Bakkt's options and futures market may indicate that the recent surge in Bitcoin prices has been mainly driven by retail or individual investors.

Wall Street Stays Silent Amid Bitcoin Rally

According to former eToro executive and Quantum Economics founder Mati Greenspan, Wall Street did not participate in Bitcoin's rally in January. Greenspan stated in an exclusive interview with LongHash:

"Wall Street has been quite indifferent to the recent price surge, but they have not been entirely inactive. Trading volume in the CME Group's cash-settled Bitcoin futures contracts has undoubtedly increased. However, it appears that the majority of the trading volume is coming from cryptocurrency exchanges."

Leverage trading data indicates that retail investors played a significant role in the recent price rebound. Since January 1st, the price of Bitcoin against the US dollar on BitMEX has risen from $6,950 to $9,500, an increase of nearly 38%.

The short-term price movements in the cryptocurrency market are often influenced by the leverage trading market. On Bitcoin leverage trading platforms, traders can use up to 125x leverage to bet on the price trend of BTC. Sudden price movements on platforms like BitMEX, Deribit, and Binance Futures can result in a series of liquidations of long or short contracts.

The recent surge in Bitcoin seems to have been driven by significant activity on leading leverage trading platforms. Meanwhile, platforms targeting institutional investors like Bakkt have not been as active. This suggests that institutions have not been heavily involved, fueling the view that the current rally may not be sustainable.

For example, as of February 1st, BitMEX's daily trading volume was $2.5 billion. Even considering an average leverage ratio of 22x, its daily trading volume is still $100 million. In comparison, Bakkt's highest daily trading volume in January was $44 million.

On BitMEX, Bitcoin's open interest (OI) in futures contracts has remained around $1 billion for several days, which is quite high. In leverage trading, OI refers to the total sum of open long and short contracts in the market. When OI reaches $1 billion, which often occurs after a prolonged price rebound, the market tends to experience significant volatility.

There are other bearish signs. Greenspan emphasized that during the entire price surge, activity on the Bitcoin blockchain did not see a significant increase. This indicates that the price increase has not been synchronous with fundamentals.

Tracking all on-chain data of the Bitcoin blockchain network, Blockchain.com shows that in the past eight months, daily unique addresses and transaction volume have not increased.

Compared to the Bitcoin price, the slow growth of these fundamentals has led CNBC contributor Brian Kelly and other commentators to suggest that the current rebound may not be sustainable.

"There hasn't been any significant increase in activity on the Bitcoin blockchain throughout this rally. In fact, it has remained relatively unchanged," Greenspan stated.

Another Possible Reason for Low Options Trading Volume: Bakkt Itself

On certain days in January, such as January 7th and January 14th, Bakkt's daily trading volume reached $40.8 million and $28.8 million, respectively. These figures are from the Bakkt Volume Bot, an automated system that tracks official trading activity on Bakkt, publicly displayed by the exchange.

For a platform targeting institutional investors rather than retail traders like Bakkt, such numbers may already be considered high. However, undoubtedly, daily trading volumes below $100 million are insignificant compared to major cryptocurrency exchanges like Coinbase and Binance.

The question remains: To what extent is Bakkt itself responsible for the current situation? It is not yet clear whether the low trading volume in Bakkt's options market is due to it being less than two months old since its launch, or simply because existing options platforms in the cryptocurrency market are more attractive than Bakkt.

Skew released a total Bitcoin options open interest chart on January 21st. It compared the open interest of all major options exchanges, including Deribit, OKEx, Bakkt, CME, and LedgerX.

Skew found that out of $554.6 million in open interest, Deribit accounted for $472 million, overshadowing CME and Bakkt.

Despite Bakkt launching its options products on December 9, 2019, and CME launching its options contracts on January 13, 2020, Bakkt's daily options trading volume is 2% lower than CME's.

Considering the open interest of all major options exchanges, Bakkt's options market trading volume may be lower compared to other platforms. The futures market is becoming increasingly saturated, and it is not yet clear if Bakkt has the competitive edge needed.

Will Wall Street Trading Volume Decrease After Monthly Close?

Apart from CME, trading volumes on institutional platforms are relatively low, even as the monthly candlestick chart of Bitcoin is about to close. The monthly close of this leading cryptocurrency coincides with CME's January futures expiration. Futures expiration refers to the settlement of futures contracts on a monthly basis, requiring investors to adjust their positions.

Historically, futures expiration, coupled with price rallies and the OI on leading leverage trading platforms, leads to extreme volatility at the beginning of the month.

However, futures expiration does not necessarily indicate a bullish or bearish trend in the market. Traders typically adjust their positions during this time. "Don't relax your guard just because futures are expiring. Be prepared for the unexpected," cryptocurrency trader Jacob Canfield said.

Overall, the current Bitcoin rally, primarily driven by retail traders and leverage trading platforms, is raising questions about whether the January surge can be sustained.

This article is from our partner LONGHASH

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