Bitcoin has been trading above $10,000 USD for around six weeks, demonstrating firm momentum and resilience. It has established the previous $10,500 USD peak achieved in February 2020 as a support level, maintaining an upward trend.
The current market structure is more favorable than previous price cycles because buyers are defending the $10,000 to $10,500 USD support range. In October 2019 and February 2020, in contrast, Bitcoin fell to the $9,000s within three weeks after hitting $10,500 USD, recording sharp rejections.
Bitcoin’s optimistic high time frame market structure has led trading volumes across the futures and options markets to surge. The trading activity in the Bitcoin market has risen to a point where even Bakkt recorded an all-time high daily volume on July 28th.
In 2018, Bakkt, a Bitcoin derivatives trading platform launched by NYSE parent company ICE, saw significant hype from the community. Scott Melker, a well-known cryptocurrency trader, described Bakkt as “arguably the most bullish event for institutional investors in the history of bitcoin” in August 2019. Alongside the direct involvement of ICE, its partnership with Starbucks attracted the interest of Bitcoin investors.
Bakkt was also the first regulated company to offer physically-settled Bitcoin futures contracts in the U.S, which carried significance as it meant traders could obtain exposure to actual bitcoin over cash-settled contracts. Cryptocurrency lawyer Jake Chervinsky said at the time:
“Bakkt will start by offering one-day, physically-settled bitcoin futures contracts. That means if you buy a futures contract from Bakkt, you get actual bitcoin the next day. One of Bakkt's most exciting features is the company behind it: the Intercontinental Exchange (ICE), the 2nd largest owner of financial exchanges in the world, including the NYSE.”
Up until May, Bakkt saw decent volume. Data from market data provider Skew shows Bakkt processed $51.8 million USD worth of Bitcoin futures contracts on May 12th, setting a record.
However, over time, Bakkt saw a decline in volume. Throughout June and July, Bakkt processed between $15 million to $30 million USD on average, while CME settled $87 million USD worth of contracts at its 3-month low. $87 million USD is low considering on July 27, CME processed more than $1.3 billion USD in daily volume.
For the second time in 2020, Bakkt’s daily volume surpassed $130 million, getting closer to the daily volume of the CME Bitcoin futures market. Skew wrote:
“Another strong session for Bakkt bitcoin futures yesterday Seeing significant pickup in volumes over the last month with in particular good interest for the physically-settled contracts.”
The spike in Bakkt’s Bitcoin futures volume coincided with recent Bitcoin’s fall to $11,102 USD. But Bakkt’s overall volume continues to make up only a fraction of the global Bitcoin futures volume. The relatively low volume makes it difficult to suggest that it contributed to Bitcoin’s pullback.