Historically low spot volumes and investor indecision weigh on Bitcoin price

If one word could be used to describe how the majority of participants in the cryptocurrency ecosystem feel about the near-term outlook for Bitcoin (BTC) it would be ‘undecided’, as mixed signals from all manner of indicators have many traders waiting for a significant move in either direction before planning their next entry point.

A new report from Delphi Digital took a macro look at Bitcoin’s current price action and found that a variety of factors, including low exchange volumes and the strengthening U.S. dollar have weighed heavily on the top cryptocurrency.

BTC/USDT 1-day chart. Source: TradingView

Bitcoin’s recent dip to $31,000 adds to the aura of fear that currently envelops the crypto market and analysts are now warning that failure to close above $31,000 could see BTC drop to the $29,000 to $24,000 zone.

Here are three areas of focus that Delphi Digital highlights as being the most impactful on the short-term price action for Bitcoin

Spot volumes and open interest collapse

According to Delphi Digital, declines in trading activity are one of the biggest factors affecting the market. This is because after the May 19 sell-off there was an exodus of spot and derivatives traders from exchanges.

Spot exchange volume. Source: Delphi Digital

As seen in the chart above, after seeing a substantial increase during the first half of 2021, exchange volumes have fallen by more than 60% as prices collapsed and traders swore off using leverage.

The precipitous drop in BTC price also helped to tamper down retail traders’ use of high leverage in derivatives markets and proof of this comes from BTC futures open interest dropping back to levels seen since early 2021.

Delphi Digital said:

“This purge has caused significant damage to the bullish market structure, with futures basis near 0% and depressed funding rates for perpetual contracts.”

On a more positive note, the mega liquidation event seen back in May helped clear out overleveraged traders, meaning…

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