Why reduced Bitcoin futures volume may signal the start of a new bull trend

Bitcoin futures volume and open interest are declining rapidly.

Why declining futures market activity could boost Bitcoin priceThe Bitcoin futures market represents most of the overleveraged trades in the Bitcoin market and popular platforms like Binance, BitMEX, and ByBit enable leverage of up to 125x.When traders are highly leveraged, they are vulnerable to liquidation.

If the futures market open interest and volume spike, it puts Bitcoin in a vulnerable position and raises the probability of cascading liquidations like those seen during the infamous Black Thursday when over $1 billion worth of futures contracts were liquidated as Bitcoin price plunged below $3,600.

The drop in futures volume can be perceived as a potentially bullish event as typically a small price movement could turn into a major price swing if mass liquidations are triggered at a certain price level.

The declining volume and open interest of the futures market could set the stage for a stable and prolonged rally to take form.

Open interest and volume of Bitcoin during bull and bear markets.

During bull markets, there are often multiple spikes in open interest but the market stays neutral for a prolonged period, allowing spot volume to pick up.

As shown in the chart below, while the futures market volume has dropped, spot volume has slightly increased.

Considering the increase in institutional demand, the rise in spot volume, and the declining futures open interest, the ongoing trend can be considered bullish.

What traders expect in the short termIn the near term, traders expect continued consolidation under the $11,000 resistance and this could extend the trend of decreasing volume in futures.