Bitcoin has now entered its 12th week of price decline since the ATH level and derivatives traders are betting for the market to drop further. Meanwhile, according to Glassnode, on-chain demand patterns are pointing to a continued uptrend.

“As a percentage of Bitcoin market cap, perpetual swap open interest is hovering around 1.3%, a historic high and often a harbinger of a blowout event. Financial leverage,” Glassnodes wrote Messages in this week.

Short bias strategy in the perpetual swap market

In addition to the market decline, funding rates were also negative for much of January, which may indicate that a short bias (the strategy of maintaining a profitable overall portfolio during a bear market) is underway in the perpetual swap market. The same negative trend can also be seen in the options market, with the highest put/call ratio in months at 59%; Signs that dealers have switched to buying discount insurance.

Bitcoin Put/Call Ratio | Source: Glassnode

“With the shift from long to short bias in derivatives markets, futures liquidity has spilled onto the short side. Given the high negative, high leverage and overall short bias, there is likely to be a short squeeze against the current trend in the near term.”

Bitcoin Funding Rate | Source: Glassnode

Looking at market demand, the number of bitcoin wallet balances is increasing non-zero and has been largely unaffected by the past three months’ decline, with the number of wallets reaching an ATH of 40.16 million addresses.

Retail wallets are not affected by the correction

Although the Bitcoin market price has fallen over the past few weeks, retail wallets containing less than 1 BTC appear to be unaffected by this correction as supply in these wallets continues to increase.

This shows that “satellite forklifts”, i.e. retailers and distributors, still exist in all market conditions.

Number of wallets with less than 1 BTC | Source: Glassnode

Another positive trend is funds flowing into illiquid wallets. According to Glassnode, more than 0.27% of the supply, roughly 51,000 BTC, has been moved from a liquid state to an illiquid state.

“This week we have seen a relatively high intensity outflow of funds, around 45,000 to 59,000 BTC per month. This means an increase in illiquid supply, suggesting that some of the coins withdrawn from exchanges may have gone into cold wallets.”

Shares on the stock exchanges are at their lowest level in years

With money moving in the market, total reserves held on exchanges have fallen to their lowest level in years at 13.27% of circulating supply. This is very different from how funds moved during the May-July 2021 drop, when more than 164,000 BTC, or 0.84% ​​of circulating supply, flowed into exchanges along with the drop in illiquid supply, which corresponds to 1.5% circulating supply.

“Despite the large-scale halvings, the trend in exchange reserves and BTC liquidity is trending in the opposite direction. The current environment tends to absorb significantly increased supply, and investors are also less likely to use and sell BTC amid the market panic.”

The minimum price continues to rise

In addition to the above bullish signs, settlement volume has declined significantly from previous highs during the May-July period and the current decline. However, the reserve price continues to rise even in a downtrend. This shows the more sustainable and even growing utility of Bitcoin.

In addition, payment volume has shifted from small transactions (under $100,000) to large institutional sizes (over $1 million).

“Transactions over $10 million now account for 45% of paid volume, while over $1 million on a company-adjusted basis accounts for more than 70%. Large-scale deals have maintained their dominance throughout 2021, even peaking higher during this correction.”

Historically, when settlement volume was so high, it generated strong bullish momentum during bear markets or at the macro market bottoms of December 2018 and March 2020.